Industrial policies, global imbalances, and technological hegemony

Industrial policies are a key feature of many countries running persistent trade surpluses. This column develops a framework to examine how industrial policies shape global imbalances and asks whether countries should worry about trade deficits, in the context of the ‘Second China Shock’ affecting mostly innovation-intensive high-tech sectors. The findings suggest that countries negatively affected by global imbalances should include industrial and innovation policies as part of their policy toolkit.