Sabotage as Industrial Policy

We characterize sabotage, exemplified by recent U.S. policies concerning China's semiconductor industry, as trade policy. For some (but not all) goods, completely destroying foreigners’ productivity increases domestic real income by shifting the location of production and improving the terms of trade. The gross benefit of sabotage can be summarized by a few sufficient statistics: trade and demand elasticities and import and production shares. The cost of sabotage is determined by countries' relative unit labor costs for the sabotaged goods. We find important non-monotinicities: for semi-conductors, partially sabotaging foreign production would lower US real income, while comprehensive sabotage would raise it.