The Daily Brief Between industrial policy and trade imbalances
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Feb 13, 2026 A tour of how modern industrial policy can reshape national economies and global trade. Discussion of how policy mixes and financial repression create capital flows, currency effects and excess savings abroad. Examination of why cheap imports and capital can hollow out tradable sectors. Look at financial tool reforms aimed at deepening bond markets and the risks in execution.
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How Financial Repression Creates Surplus Capital
- Financial repression shifts income from consumption to investment and raises national savings.
- Excess savings flow into foreign assets, lowering global interest rates and depressing the host currency.
The Financial Resource Curse Explained
- Cheap foreign capital inflows boost non-tradable sectors like real estate and services.
- This 'financial resource curse' de-industrializes deficit countries and weakens long-term innovation.
China As The Classic Example
- China serves as the classic example of an unbalanced policy mix driving surplus exports.
- Japan, South Korea, Taiwan and Germany followed similar industrial strategies in earlier decades.