HONG KONG – Now that the United States has introduced a new set of import tariffs on Chinese goods, the world’s two largest economies appear to be on the brink of open economic warfare – and developing countries are in danger of getting caught in the crossfire. Beyond the risk that they could face sanctions or other trade restrictions if one superpower perceives them to be helping the other, Sino-American trade tensions are eroding the value of many of these economies’ comparative advantages, such as cheap labor and land. Coping with these challenges will require skillful economic statecraft.

Comparative and competitive advantages are dynamic by nature; they can be acquired or lost over time. As Harvard’s Michael Porter put it in 1990, “National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists.” Rather, an economy’s competitiveness “depends on the capacity of its industry to innovate and upgrade.”

As a growing number of governments pursue industrial policies – from short-term protective measures, like tariffs, to more forward-looking initiatives, such as targeted subsidies and deep structural reforms – the capacity to innovate and upgrade depends significantly on the state’s ability to work with the market to boost competitiveness. This poses a challenge for advanced economies no less than it does for developing countries.

QOSHE - Economic Development in an Age of Great-Power Competition - Andrew Sheng
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Economic Development in an Age of Great-Power Competition

45 3
30.05.2024

HONG KONG – Now that the United States has introduced a new set of import tariffs on Chinese goods, the world’s two largest economies appear to be on the brink of open economic warfare – and developing countries are in danger of getting caught in the crossfire. Beyond the risk that they could face sanctions or other trade restrictions if one superpower perceives........

© Project Syndicate


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