Quotation of the Day…

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… is from page 88 of Nicholas Bloom’s, Mirko Draca’s, and John Van Reenen’s 2016 Review of Economic Studies paper titled “Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity” (first emphasis original; second emphasis added):

Chinese import competition increases innovation within surviving firms. Firms facing higher levels of Chinese import competition create more patents, raise their IT intensity, and increase their overall level of Productivity. They also increase R&D, management quality and skill levels, and reduce prices and profitability. Second, Chinese import competition reduces employment and survival probabilities in low-tech firms. Firms with lower levels of patents or TFP [Total Factor Productivity] shrink and exit much more rapidly than high-tech firms in response to Chinese competition. Thus, our article jointly examines the effects of trade on survival/selection and innovation. The combined impact of these within and between firm effects causes technological upgrading in those industries most affected by Chinese imports. We focus on China both because it is the largest developing country exporter, and because China’s accession to the WTO enables us to plausibly identify the causal effects of falling trade barriers. However, we also show results for imports from other developing countries, and find a similar impact on technical change. In contrast, imports from developed countries appear to have little or no impact on technology.

DBx: In real-world economies, there are no solutions, only trade-offs. And note here this trade-off: Although protecting this, that, or the other U.S. industry from the competition of imports from China and other developing countries might enhance U.S. national security today, because such protection reduces the innovativeness of the protected U.S. industries, that same protection might well compromise U.S. national security tomorrow.