1/10
I've had many discussions about trade and industrial policy since Lighthizer's article came out, and it seems to me that there is a lot of confusion about just what constitutes "beggar-thy-neighbor" policies.
ft.com/content/c72fac…
I've had many discussions about trade and industrial policy since Lighthizer's article came out, and it seems to me that there is a lot of confusion about just what constitutes "beggar-thy-neighbor" policies.
ft.com/content/c72fac…
2/10
If a country wants to shift its economy from less favored sectors to more favored sectors, such as EV's, by subsidizing and supporting the latter at the expense of the former, this simply represents the development of productivity in the economy.
If a country wants to shift its economy from less favored sectors to more favored sectors, such as EV's, by subsidizing and supporting the latter at the expense of the former, this simply represents the development of productivity in the economy.
3/10
It's not beggar-thy-neighbor. It just means moving up the value chain more aggressively. As the share of production in EVs increases, in this case, it decreases in less-favored sectors by the same relative amount, so that total production remains in line with total demand.
It's not beggar-thy-neighbor. It just means moving up the value chain more aggressively. As the share of production in EVs increases, in this case, it decreases in less-favored sectors by the same relative amount, so that total production remains in line with total demand.
4/10
That isn't a predatory trade policy because if a country shifts from producing less-favored goods to producing more-favored goods, its contribution to global demand remains the same. It will export more of the former and import more of the latter.
That isn't a predatory trade policy because if a country shifts from producing less-favored goods to producing more-favored goods, its contribution to global demand remains the same. It will export more of the former and import more of the latter.
5/10
That is precisely how comparative advantage works.
Of course this doesn't mean that if one country chooses to support EVs, other countries may no longer do the same. If they also favor EV production, they too should implement favorable trade and industrial policies.
That is precisely how comparative advantage works.
Of course this doesn't mean that if one country chooses to support EVs, other countries may no longer do the same. If they also favor EV production, they too should implement favorable trade and industrial policies.
6/10
This may very well result in trade conflict as each country tries to support its own producers at the expense of foreign producers, but as long as countries choose to alter their production patterns through industrial policy, this is inevitable.
This may very well result in trade conflict as each country tries to support its own producers at the expense of foreign producers, but as long as countries choose to alter their production patterns through industrial policy, this is inevitable.
7/10
The beggar-thy-neighbor problem for global trade only occurs when industrial policy supports favored sectors not at the expense of less-favored sectors but rather at the expense of households, by preventing wages and transfers from rising in line with productivity.
The beggar-thy-neighbor problem for global trade only occurs when industrial policy supports favored sectors not at the expense of less-favored sectors but rather at the expense of households, by preventing wages and transfers from rising in line with productivity.
8/10
That's when trade become predatory, when countries systematically produce more than they can consume or invest at home. In that case rather than reverse their industrial policies by raising wages, or suffer the unemployment consequences as...
That's when trade become predatory, when countries systematically produce more than they can consume or invest at home. In that case rather than reverse their industrial policies by raising wages, or suffer the unemployment consequences as...
9/10
domestic producers respond to weak domestic demand by closing down production facilities, they simply export the excess production to their trade partners without using the additional exports to pay for additional imports.
domestic producers respond to weak domestic demand by closing down production facilities, they simply export the excess production to their trade partners without using the additional exports to pay for additional imports.
10/10
It is only when industrial policies suppress domestic demand – and externalize the cost by running trade surpluses, as the US did in the 1930s, Japan in the 1980s, Germany in the 2000s and China today – that they become beggar-thy-neighbor policies.
It is only when industrial policies suppress domestic demand – and externalize the cost by running trade surpluses, as the US did in the 1930s, Japan in the 1980s, Germany in the 2000s and China today – that they become beggar-thy-neighbor policies.
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