Trade and Technology Compatibility in General Equilibrium

2024-05-07 11:55:14

We develop a trade model in which the horizontal proximity between a firm’s own technology and that of its suppliers influences input efficiencies. By expanding or limiting firms’ access to foreign suppliers, trade policies affect firms’ horizontal technology choices and, via input-output linkages, shape countries’ technological interdependence. We characterize these impacts and test them using technological similarity measures derived from patent data. Quantification of the model shows that a semiconductor export embargo by the U.S. against China leads to a technological divergence between the two countries and technological realignments of other countries, thereby amplifying welfare costs for both the U.S. and China.

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