Trade Policy Uncertainty And Technological Content Upgrading Of China’s Manufacturing Exports

Since China’s reform and opening-up policy,especially after joining WTO,under the relatively free international trade environment,China’s manufacturing industry has been deeply embedded in the contemporary international division of labor system by absorbing foreign direct investment,industrial transfer and outsourcing orders,which has brought significant development to China’s manufacturing industry in terms of both quantity and quality.However,this development model has also caused the current dilemma that China’s manufacturing industry is at the low end of the division of labor in the global value chain,and the key links of high value-added and high-tech production are controlled by developed countries,and China’s manufacturing exports are facing the problem of upgrading technology content.More importantly,compared with the past,the world is currently experiencing a great change that has never been seen in a century,and China’s manufacturing exports may face a more unstable and uncertain external development environment in the future,among which,the "trade policy uncertainty" from the export market is one of the important manifestations of the uncertain environment.Therefore,one of the core issues discussed in this paper is what is the relationship between trade policy uncertainty in export markets and the upgrading of technological content of Chinese manufacturing exports.This paper examines this issue from four main perspectives: theoretical mechanism,empirical test,policy breakthrough,and power shift.The "theoretical mechanism" focuses on how trade policy uncertainty affects the technological upgrading of China’s manufacturing exports at the theoretical level.The "empirical test" focuses on the falsification of the theoretical findings and mechanisms by empirical data.The "policy breakthrough" answers the question of how much the FTA strategy implemented by China can mitigate the negative technology shock effects of trade policy uncertainty.The "power shifts" expands on the characteristics of power shifts that drive the technological upgrading of China’s manufacturing exports during periods of varying intensity of trade policy uncertainty.Meanwhile,the data used in this paper for the relevant research are mainly Chinese industrial enterprise data,Chinese customs import and export data,CEPII-BACI data,WITS tariff data and WTO’s Tariff Download Facility data.Accordingly,the research in this paper can be broadly divided into the following four aspects.The first aspect is the study of theoretical mechanisms.Based on the theory of comparative advantage,this part constructs a theoretical framework capable of analyzing the technological content upgrading of China’s manufacturing exports from three drivers: factor endowment structure,endogenous technological progress and market demand.And on this basis,trade policy uncertainty is introduced to explore the mechanism of its role in the process of upgrading the technological content of China’s manufacturing exports.The study finds that trade policy uncertainty has a dampening effect on the technological upgrading of Chinese manufacturing exports.On the one hand,the increased uncertainty of the market trade policy will lead to distortion of the market demand and reduce the expected revenue of the enterprises exporting to the market.This in turn makes exporters more inclined to exit the market,leading to a decline in the rate of capital accumulation and the investment available for R&D.Especially in the case of high-technology products,the higher the trade policy uncertainty,the more it can dampen firms’ expectations of monopoly profits from R&D in high-technology products.Ultimately,this results in a dual blockage of the structural upgrading mechanism of factor endowments and the endogenous technological progress mechanism.On the other hand,trade policy uncertainty may further act on the"choice of product export categories within the multi-product firm" through the"distorting effects on the expected returns of different products.Rising trade policy uncertainty will force multi-product firms to abandon those export product categories in which they do not have a competitive advantage,and to retain only those product categories in which they have a sufficient competitive advantage.However,in the process of transformation and upgrading of China’s manufacturing industry,the product categories that have sufficient competitive advantage for export are often those with low technology content.This inhibits the incentive of enterprises to export products with higher technology content.The second aspect is the study of empirical tests.On the one hand,this section proposes a construction method of "bilateral dominant comparative advantage".On this basis,an export technology content indicator is constructed to allow for differences in the export technology content of similar products in different target markets.Then,a high-dimensional panel fixed effects model is used to investigate the correlation between trade policy uncertainty and the upgrading of the technological content of Chinese manufacturing exports.The empirical results show that the former has a significant dampening effect on the latter,a result that remains robust after accounting for various scenarios such as endogeneity,lagged effects of policies,and measurement errors in explanatory variables.And it is also found that especially in the US and EU developed markets,the negative effect of each unit increases in trade policy uncertainty on the technological content upgrading of Chinese technology-intensive industries’ exports is much higher than in other markets.On the other hand,in order to identify the micro mechanisms in the theoretical analysis,this paper innovatively analyzes the differences between "core products" and "core technology products" in the export product categories of firms.The former refers to the product category with the largest export share within the firm,while the latter refers to the product category with higher technological content that can best help the firm improve its market position in the short term.It is found that when the core products and the core technology products are not the same products,the upgrading of the technological content of the enterprises’ exports mainly comes from the improvement of the propensity to export the core technology products,but not the propensity to export the core products.The microscopic process of upgrading the technological content of China’s manufacturing exports is that enterprises continuously cultivate their comparative advantages in the export of core technology products,so that the "technological propensity" of the industry keeps increasing.However,under the influence of rising uncertainty of trade policy,enterprises tend to export core products with comparative advantage but relatively low technology content in order to hedge against the risk of market uncertainty.This has also led to a tendency to squeeze the export of core technology products,ultimately leading to the industry’s export technology content upgrade hindered.The third area is the study of policy breakthroughs.In this part,China’s FTA applications are divided into two categories: "active participation" and "passive response".Then,taking CAFTA and CPTPP as examples,the "policy breaking" effect of FTA strategy is studied.In the study based on participation in CAFTA,a quasinatural experiment is designed by a “difference-in-difference" method.It is found that CAFTA significantly suppresses the negative effect of trade policy uncertainty on the technological upgrading of Chinese manufacturing enterprises’ exports.And this policy effect is also related to firm ownership,export mode,and geographical location.In particular,policy shocks to upstream industries may also have a positive impact on firms’ export technology upgrading in downstream industries through the "inputoutput" correlation channel.In the case of the CPTPP application,a first-order difference-in-difference regression model is constructed to simulate the effect of China’s participation in the CPTPP on the growth rate of technology content in industry exports.It is found that China’s participation in the CPTPP increases the growth rate of export technology content in most industries in China’s manufacturing sector compared to the case of non-participation in the CPTPP.This effect is mainly achieved by improving the "average export technology content growth rate of firms" within industries,but not by the "inter-firm resource reallocation efficiency growth rate"within industries.The fourth area is the study of dynamic transformation.This section is an extended discussion.First,this part innovatively proposes a two-dimensional expanded dynamic OP decomposition method to decompose the change in technology content of China’s manufacturing exports into four sources: target market selection effect,technology advancement effect,product-technology allocation effect,and product turnover effect.Then,the measurement of the structural decomposition of export technology content growth reveals that the primary source of China’s manufacturing export technology content growth is the product-technology allocation effect,representing the strategic climbing process of manufacturing products in the global value chain as the core cause of growth.The technology advancement effect and target market selection effect are in the second echelon,indicating that both the promotion of production technology advancement and strategic selection of target markets play an important role in the increase of technology content of manufacturing exports.The product turnover effect is weak,indicating that the turnover of old and new products in the export market cannot effectively explain the growth trend of the technological content of China’s manufacturing exports.Finally,this section further performs a constrained plausible uncorrelated regression of the decomposed constant equation based on the grouping of trade policy uncertainties of different intensities.It is found that when trade policy uncertainty shifts from low to high,the structure of the growth drivers of the technological content of China’s manufacturing exports also shows a clear shift.The target market selection effect and the technological progress effect can explain the share of changes in export technology content,showing a "low to high" and "high to low" transition process,respectively.Based on the above findings,this paper also puts forward several countermeasure suggestions.For example,China should participate in and even lead the WTO for modernization and reform.China should seize the favorable opportunity that the U.S.has not yet returned to CPTPP and actively promote the negotiation process of joining CPTPP.China should promote the digitalization of the manufacturing industry and increase the technological content of its products.China should guide domestic consumers to "inward" consumption of local middle and high-end products,etc.