Quantity vs. Value: Divergent Innovation Outcomes Under Chinese Import Pressure

Abstract

We explore the impact of Chinese import competition on innovation in U.S. manufacturing firms. Our analysis uncovers a striking divergence in innovation outcomes: although firms boost their patent output, the economic value and technological significance of these patents decline. More specifically, the firms transition from groundbreaking inventions to a series of incremental advancements aimed at differentiating their product lines. Our findings reconcile two foundational views on competition and innovation-one emphasizing rent erosion and the other innovation stimulation-by showing that competitive pressure can simultaneously encourage more innovation while reducing its economic value