Trade Wars, Technology and Productivity

72 Pages Posted: 18 Nov 2019 Last revised: 28 Apr 2023

See all articles by Ching-mu Chen

Ching-mu Chen

National Changhua University of Education

Wan-Jung Cheng

Academia Sinica

Shin-Kun Peng

Academia Sinica

Raymond G. Riezman

Aarhus University - Department of Economics and Business Economics; University of California, Santa Barbara (UCSB) - Department of Economics; University of Iowa - Henry B. Tippie College of Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); GEP; Aarhus University - School of Business and Social Sciences

Ping Wang

Washington University in St. Louis - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2019

Abstract

If international trade is strictly trade in intermediate goods, would the common presumption, that small, less developed economies (the South) lose from trade wars still be true? We address this question by constructing a dynamic general equilibrium model in which the North and the South trade technology-embodied intermediate goods. We show that the detrimental effects of the trade war are mitigated by the fact that producers in the South can adjust their choice of imported intermediate goods and their investment in domestic technologies. We establish sufficient conditions under which the steady-state trade equilibrium length of the production line and the range of domestic production in the South both expand in response to a tariff war. It thereby creates a novel channel of scale-scope trade-off: The South counters the losses from trade protection in the volume and value of trade (scale) with an upward movement along the value chain (scope). As a result, average productivity in the South and aggregate technology used by the South both turn out to be higher.

Suggested Citation

Chen, Ching-mu and Cheng, Wan-Jung and Peng, Shin-Kun and Riezman, Raymond G. and Wang, Ping, Trade Wars, Technology and Productivity (November 2019). NBER Working Paper No. w26468, Available at SSRN: https://ssrn.com/abstract=3488968

Ching-mu Chen (Contact Author)

National Changhua University of Education ( email )

1 Ching-Teh Rd.
Pai Sha Village
Changhua 500, 500
Taiwan

Wan-Jung Cheng

Academia Sinica ( email )

Shin-Kun Peng

Academia Sinica ( email )

Nankang
Taipei, 11529
Taiwan

Raymond G. Riezman

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

316 PBB
Iowa City, IA 52242
United States

HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

GEP ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

Ping Wang

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
12
Abstract Views
410
PlumX Metrics