Sébastien Jean and Jean-Pierre Landau: "In terms of welfare, European consumers should welcome cheap electric vehicles, batteries, and solar panels that are subsidized directly or indirectly by Chinese workers and taxpayers. But Europeans instead see them as a threat, which is rational from a dynamic perspective. Cheap imports may raise purchasing power today, but they can destroy the industrial base on which tomorrow’s income depends. The transfer is generous in the present, but costly in the future."

Jean and Landau are right, and they represent a real shift in the way the world understands trade, away from the complacent (some would even say condescending) neglect still favored by mainstream economists, to a deeper grasp of how trade imbalances allow countries that exert greater control over their external accounts to export their industrial policies (in reverse) to those of their trade partners with more open external accounts.

In a world in which some economies exert substantial control over their external accounts, in other words, while other countries don't, if the former decide to implement aggressive industrial policies, not only are they restructuring their own domestic economies, but they are also restructuring the domestic economies of the latter in a such a way as to accommodate their own economic needs.

Jean and Landau add: "A useful complement to this strategy is capital controls. Controls on outflows keep domestic savings at home, while restricting inflows prevents the economy from rebalancing from tradable to non-tradable sectors—the opposite of what the strategy aims to achieve. Capital inflows strengthen the currency, weaken exports, and support consumption. They accelerate domestic absorption before scale and learning are secured, thus impeding the pursuit of comparative advantage."

I agree, and this suggests that rather than encourage capital inflows, economies that want to strengthen their manufacturing and productive sectors and to benefit workers by raising productivity and wages should consider capital controls as a far more effective tool than tariffs. Unfettered financial inflows largely benefit the large banks and owners of movable capital at the expense of manufacturers and workers. They also force the economy to shift out of producing tradable goods (including manufacturing) and into non-tradable goods (real estate and services).
https://t.co/zaECptPGI7