Tariffs and Technological Hegemony

• Authors: Martin Wolf and Luca Fornaro.
• BSE Working Paper: 1530 | October 25
• Keywords: endogenous growth , international trade , innovation , tariffs , intangibles , high-tech
• JEL codes: E22, F12, F13, F42, F43, O24, O33

We provide a theory connecting trade policies to innovation and technological hegemony, based on the notion that high-tech clusters generate technological rents for the countries hosting them. We show that tariffs on high-tech imports may be used to steal technological rents from the rest of the world, by redirecting innovation activities from foreign to domestic firms. This strategy may lead to welfare gains, which however come at the expense of even larger welfare losses in the rest of the world. Tariffs may backfire even for the country imposing them if they are not well designed, or if the rest of the world retaliates.