International trade is crucial in spreading knowledge across borders. The ongoing US-China chip conflict highlights such complex interplay among trade, technology, and knowledge exchange. ACI’s researchers provide valuable insights into this subject with a unique, evidence-based perspective.

The key contribution of the research is to measure the speed of knowledge acquisition during international trade. The authors measure this rate of learning across 15 industries in a well-represented group of 78 economies. Using these novel measurements, they map the global evolution of comparative advantage through idea diffusion and simulate the effects of US-China tech competitions. 

Specifically, the authors build their case on the premise that idea exchange enables firms in developing economies to learn from advanced trade partners. This learning process gradually boosts their productivity, leading to greater export competitiveness over time.

The research underscores Japan’s leading role, surpassing even the United States in this dynamic. In the 1990s, Japan’s machinery and electronics industry alone contributed a striking 10% to the total knowledge contributions across all industries and countries around the world. This number moderates to 3% – 5% in recent years, partly due to China’s burgeoning trade in chemicals and electronics with the global south.

The paper also reveals a paradox in knowledge sharing through international trade: while a higher learning rate benefits developing economies, it can backfire for knowledge contributors like Japan. If learning from Japanese firms were more challenging, Japan’s real GDP might have been higher. This is because with easier learning, it allows emerging economies like China to rapidly improve their productivity, especially given the colossal scale of Sino-Japanese trade in machinery and electronics. As Chinese firms gain knowledge through trade with Japan, they eventually evolve into formidable competitors, eroding Japan’s comparative advantage in technology exports.

The authors then simulate the ongoing tech spat between US and China, by implementing a targeted ban on computer and electronics exports. They find that this exercise disproportionately harms China. With a complete ban, China’s real GDP drops by 0.5% while the US only experiences a 0.1% loss. This asymmetry highlights the fact that China’s productivity growth relies significantly more on foreign technology during the sample period.

The authors also explore a scenario where G7 countries implement a coordinated tech embargo. In this scenario, the loss for China increases five to six times compared to those from the unilateral US ban. The implications for the rest of the world depend on the strictness of trade restrictions, with a complete export ban leading to sizable adverse impacts. But with a moderate level of restrictions, the spillover on other countries is negligible. 

As the world grapples with trade tensions and tech rivalries, this study offers a novel quantitative toolkit for policymakers, businesses, and academics to navigate through the uncertain terrain. It also calls for a deeper understanding of the delicate balance in our interconnected world, especially when spillover effects impact those caught in between.

By XU, Ni Scarlet

Researchers: DENG, Liuchun, ZHANG, Chi