The burgeoning trade war between the United States and China has as much to do with technology as with the balance of trade. Reports have surfaced that the Treasury Department is drafting rules to block Chinese firms from investing in American companies doing business in so-called industrially significant technology, while the Commerce Department is planning new export controls to keep such technologies out of Chinese hands.
These moves follow President Donald Trump’s proposal to impose tariffs on $50 billion worth of Chinese products, many of which are on the priority list for “Made in China 2025,” President Xi Jinping’s blueprint to transform China into a global leader in high-tech industries like aerospace, robotics, pharmaceuticals, and machinery. Although the Chinese government has refused to modify its initiative, the U.S. is demanding that China end all government subsidies and grants under the program. Trade talks have stumbled on this point.
America’s concern with Made in China 2025 is understandable; China’s approach to technology development has been controversial, to say the least.But there are better ways to respond to China’s policies. Two ways, to be precise.
First, America and other trade partners must continue to confront China on its intellectual-property (IP) violations and market-access inequities. Under free-market competition, one country’s successes in science and technology should not come at others’ expense. Innovations like new cancer drugs or faster computing should benefit people everywhere — not only those fortunate enough to live in the country where the discoveries happen to have been developed.
With a deep pool of talent, China has much to contribute to progress in science and technology; the world should welcome China’s efforts to innovate. But the terms of competition and development must be market-conforming, not market-distorting.
Given China’s spotty record on market access and IP protection, the U.S. is right to consider how the Made in China 2025 strategy will affect American interests. Its policy makers should focus, however, on getting the rules of the game right, rather than stopping Chinese innovation per se.
Read the full post at MarketWatch.
Yasheng Huang is the International Program Professor in Chinese Economy and Business and a Professor of Global Economics and Management at the MIT Sloan School of Management.