Trade truths

Protectionist policies may help leaders make political gains, as is currently happening in various parts of the world, but are unlikely to benefit the economy


Photo: Bloomberg
Photo: Bloomberg

During his election campaign, US president-elect Donald Trump proposed imposing higher tariffs on imports from China and promised to label it a currency manipulator. The motivation is to bring jobs back to the US. Economists have warned against any such misadventure as it could trigger a trade war, leaving everyone, including the US, worse off.

A new research note put out by the US Federal Reserve supports what economists have been saying all this while and shows that the US actually benefited from imports as it led to greater innovation.

The note, which mapped innovation—quantified by the number of patents—and flow of imports, said: “…the rapid rise of Chinese imports contributed to making the United States a champion of technological innovation”.

The upshot: Protectionist policies may help leaders make political gains, as is currently happening in various parts of the world, but are unlikely to benefit the economy. How Trump actually approaches trade policy after taking office will be keenly watched.

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