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Tariffs and technological hegemony

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Abstract

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.

Suggested Citation

  • Luca Fornaro & Martin Wolf, 2025. "Tariffs and technological hegemony," Economics Working Papers 1925, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2026.
    • Handle: RePEc:upf:upfgen:1925
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    1. Philippe Aghion & Antonin Bergeaud & Matthieu Lequien & Marc J. Melitz, 2024. "The Heterogeneous Impact of Market Size on Innovation: Evidence from French Firm-Level Exports," The Review of Economics and Statistics, MIT Press, vol. 106(3), pages 608-626, May.
    2. Javier Bianchi & Louphou Coulibaly, 2025. "The Optimal Monetary Policy Response to Tariffs," Working Papers 810, Federal Reserve Bank of Minneapolis.
    3. Dominick Bartelme & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2025. "The Textbook Case for Industrial Policy: Theory Meets Data," Journal of Political Economy, University of Chicago Press, vol. 133(5), pages 1527-1573.
    4. Ferrari, Alessandro & Ossa, Ralph, 2023. "A quantitative analysis of subsidy competition in the U.S," Journal of Public Economics, Elsevier, vol. 224(C).
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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