Tags
China, Financial Times, intellectual property, intellectual property theft, Lucy Hornby, Made in China 2025, manufacturing, national security, subsidies, tech transfer, Trade, trade deficit, Trump, {What's Left of) Our Economy
So much is so obviously wrong so far with the trade agreement just reached by the Trump administration and China that even Mainstream Media reporters have correctly identified many major flaws. As the joint statement released by the U.S. and Chinese governments made embarrassingly clear, Beijing has not made a single commitment that’s comprised of any specifics, that creates any time-frames for compliance, or that entails any penalties for non-compliance (although the United States considers the tariffs threatened to punish China for intellectual property theft to have only been “suspended”).
Despite the importance placed by almost everyone involved in America’s China policy inside or outside the government on doing something about that intellectual property theft, and about the Made in China 2025 program aimed at creating Chinese global dominance in numerous high tech industries crucial to prosperity and national security, Beijing pledged exactly nothing concrete on the former, and the only possible reference to the latter was a pledge by both countries “to strive to create a fair, level playing field for competition.”
And the sectoral priorities were discouraging from a U.S. standpoint – at least if you believe (as you should) that manufacturing actually or potentially creates outsized economic (not to mention national security) benefits for the nation in terms of productivity growth, jobs and output multipliers, and capital and technological intensiveness. For whereas “Both sides agreed on meaningful increases in United States agriculture and energy exports,” they simply “discussed expanding trade in manufactured goods and services.”
Possibly worse still: For all the references to “[working] out the details” and “[continuing] to engage at high levels on these issues,” the economic engagement between the two countries is not even being called a “negotiation.” Instead, it’s been termed a “consultation.”
But perhaps most troubling of all about the Trump approach is that even if the President’s core aims remained intact, and tariffs were imposed in order to halt China’s intellectual property theft, combat the Made in China 2025 program, and slash the trade imbalance, it’s unclear at best how effective they would be.
Leave aside the question of whether President Trump could convince affected chunks of the American economy ranging from agriculture to high tech to support any tariffs, and accept any short-term costs and disruptions in order to achieve China trade-related goals that all these industries consider crucially important. In the case of intellectual property and China 2025, how would Beijing’s concessions, or even outright capitulation, be measured? And what difference would actually be made?
For instance, would the tech companies whose knowhow is being stolen or extorted (via threats to cut off their access to the Chinese market if they don’t cooperate) really start pointing publicly to ongoing Chinese transgressions, after decades of lying low and hoping against all reason that the problem would simply go away or at least not worsen?
Even if they did grow spines and/or believe that the Trump or successor administrations would back them up by imposing prompt and severe punishments, would these companies suddenly become more careful about the technology that they transfer voluntarily? That sounds far-fetched because it would involve these firms backing away substantially from their longstanding strategy of supplying the world with their increasingly sophisticated products and services from China – and sacrificing the immense sunk costs they have already incurred in developing the Chinese supply chains needed to accomplish this goal.
Acquiring cutting edge intellectual property by hook or by crook is also central to the Made in China 2025 program. However unlikely in practice, smart and tough enough U.S. policies can in principle overcome the above obstacles to halting tech theft and extortion. But what about another aspect of this Chinese program – massive government subsidies for the industries involved? Is it the slightest bit realistic to believe that Washington will even be able to track these funds as they make their way from China’s secretive bureaucracies to its equally opaque production entities (which don’t really deserve to be called “companies” or “businesses” because they’re all to varying degrees arms of the state)? How on earth would that work? And when has the United States succeeded in halting subsidization in other Asian countries where the government’s role is equally pervasive?
Moreover, as the Financial Times‘ Lucy Hornby has just pointed out, ending yet another objectionable feature of the Made in China 2025 program – strong preferences for Chinese participants and various forms of harassment and discrimination for their foreign-owned rivals – would kneecap two other major and related Trump administration China goals: reducing the bilateral trade deficit and curbing the offshoring of American production and jobs to the PRC.
For if China becomes an easier place to do business, U.S.- and other foreign-owned multinationals would become that much more likely to use China as their global production bases.
President Trump correctly understood that a critical mass of U.S. voters were fed up with his predecessors’ Offshoring Lobby-dominated China policies and hankering for a strategy that put domestic production and employment first. He was also right in insisting that such a course change would strengthen the nation’s long run economy and its national security. But the latest trade agreement he’s reached with China, however tentative, makes painfully clear either that the President and his main advisers don’t yet know how to achieve these vital goals, or that he hasn’t yet been able to choose between competing approaches with which he’s been presented.
