China's domestic imbalances and overcapacity due to state subsidies have taken center stage for the first time in trade negotiations with the United States, further complicating an already complex bilateral relationship.
U.S. Commerce Secretary Janet Yellen said in Beijing last week that China's domestic overcapacity (created by a calculated national policy of targeted aid) in key sectors such as electric vehicles, solar panels and telecommunications is being doubled. He argued that this is the key to trade imbalances between countries.
This means that the decades-old problem of the U.S.-China trade imbalance goes beyond a simple metric of quantity, and goes beyond the fact that it has to be solved in some way, at a huge amount of hundreds of billions of dollars a year. That means it touches on the core of China's strategic plan: Beijing's trade imbalances. Ambition to match or exceed U.S. technology production.
For the Chinese government, innovation in new production capacity is necessary because US risk mitigation policies aim to exclude China from technology transfers. The United States accuses China of violating significant intellectual property rights and using dual-use technology for military purposes.
According to a Xinhua report on the April 2 telephone conversation between President Xi Jinping and President Joseph Biden, China claimed:
The United States has taken a series of measures to curb China's trade and technological development, adding more and more Chinese companies to its sanctions list. This is not “removing risk”; it is creating risk. As long as the US side seeks mutually beneficial cooperation and is willing to share the benefits of China's development, it will find that China's door is always open. Still, China will not sit back and watch if it insists on containing China's high-tech development and stripping China of its legitimate rights to development.
A few days later, Yellen responded that trade and technology are intertwined. China's overcapacity is at the heart of the world's trade imbalance. Although the atmosphere at her meeting in Beijing was decidedly warm and cordial, her message was icy. The competition continues, though it may be technological rather than overtly political.
China is investing in new manufacturing capacity, and the United States is experiencing its own artificial intelligence revolution. China and the West are diverging in their paths to developing new technologies. In the short term, we may see an advantage for China due to excess capacity. Nevertheless, Western countries promise to develop a new generation of technologies that will outperform China and gradually make it obsolete.
More broadly, this situation may reflect the dynamics between Japanese and American technology in the 1980s. The Japanese seemed to be leading the race, but then the United States introduced a new generation of computers and the Internet, leaving Japanese technology behind.
Still, can the West deliver on its promises? Or will China invent something that surpasses Western scientists? In recent years, it seemed that Western technology was still ahead of the curve. Western countries have produced effective vaccines against the new coronavirus. China did not. Nevertheless, China insists that its path is the only way forward.
technology market
Markets for technology development are critical because they generate resources to fund research. Therefore, market penetration becomes a battleground. In theory, Western countries have an advantage because of their favorable domestic markets. By restricting or restricting the sale of Chinese technology within these markets, Western countries could complicate China's efforts.
But this approach could be costly for Western countries, given the price advantages of Chinese imports.
In any case, absent a political or diplomatic breakthrough, global trade will be split into two categories: high-tech and low-tech products, and although there will be a gray area when it comes to “smuggling,” the separation of the two regions will continue. There is a possible scenario where this progresses. Rising US risk aversion could limit trade in high-tech goods with China.
Similar racial discrimination existed throughout history. Drugs and weapons were once freely traded, but over time they have become more tightly regulated. Similarly, the movement of workers between countries, once freely allowed, is now tightly controlled. This change came as the world realized the dangers of the free movement of drugs, weapons, and labor.
Regardless of the accuracy of this perception, there is growing awareness of the systemic dangers of free trade in technology with China, as China is seen as a threat in the West. Unless this perception changes, trends of fragmentation will deepen and global trade will move in a new direction than it has for the past 30 years.
The solution is neither easy nor quick, and the ultimate winner remains unclear. China has installed 3.38 million of the world's 4 million 5G base stations, and has the potential to increase market penetration, making U.S. technology an alternative to cheaper and more reliable Chinese technology in developing countries. It is possible to take on a challenge.
China's domestic issues
However, the challenges facing China are not only external. As The Economist has argued, addressing the problem of high-tech foreign penetration may not solve China's inherent problem of weak domestic demand.
China's response is a strategy built around what officials call “new productive forces.” This avoids the traditional path of large-scale consumer stimulus to stimulate the economy. …Instead, Xi hopes that state power will accelerate advanced manufacturing, which will create productive jobs, make China self-sufficient, and protect it from American aggression. There is. China will leapfrog steel and skyscrapers and usher in a golden age of mass production in a “low-altitude economy” powered by electric cars, batteries, bio-manufacturing and drones.
Mr. Xi's ultimate goal is to reverse the balance of power in the global economy. Not only will China be able to escape its dependence on Western technology; He will also control much of the key intellectual property in the new industry and charge rent accordingly. Multinational companies will come to China to learn, not to teach.
However, Mr. Xi's plan is fundamentally flawed. One drawback is that it ignores the consumer. Their spending dwarfs wealth and new productive capacity, but accounts for only 37% of GDP, far below global standards. Stimulus is needed to restore confidence amid the real estate downturn and thereby boost consumer spending. To induce consumers to save less, reforms are needed to improve social security and health care and open public services to all urban migrants.
Consumer confidence remains low even after the coronavirus outbreak. People are not investing or spending. they are saving money. Several factors are contributing to this trend.
- First, the long anti-corruption campaign has failed to produce new open and transparent business regulations that legally protect private property, the basis of the economy. In China, the ownership of assets remains at the discretion of the political powers, who can deem them illegal or illegal and confiscate them through secret party procedures.
- Second, the extended coronavirus lockdown, which was harshly enforced and longer than in other parts of the world, robbed many Chinese citizens of any sense of security for the future. Businesses were shut down, people had no income, no paychecks, no state compensation for months, and only their savings were the only way to survive. The possibility of a new lockdown does not seem impossible.
- Third, the absence of a welfare state means that individuals must save for education, health care, and retirement. There is no widespread private insurance or national system to provide it. With a tax rate half that of European countries that support welfare states, China would have to raise taxes on the middle class, potentially causing dissatisfaction and demands for political representation in exchange.
- Finally, aggressive rhetoric in Chinese media about war preparations and foreign threats encourages ordinary people, unable to plan for a peaceful future, to save rather than spend and invest.
These challenges pose major obstacles for China, which will need to increase exports to make up for the lack of domestic demand. But rising exports and surpluses could increase friction with more countries and isolate Beijing internationally.
According to World Bank officials, China already maintains a trade surplus in goods with 179 countries. China's ambitions to become a huge net exporter will face major hurdles as the world's leading net importer, the United States, seeks to reverse this trend.
American U-turn
This represents a major shift for the United States, which has championed globalization and delocalization for decades. Yellen reportedly lamented that imports of Chinese goods helped reduce inflation, but at the cost of blue-collar jobs in the United States. However, this result was not just an oversight or a mistake. Globalization might have been sustainable if China had opened its markets, as seemed possible with his accession to the WTO in December 2001.
Such an opening would significantly change the world's economic landscape, potentially creating a global class of ultra-rich people, and at the same time widening the social gap between the haves and have-nots. be. At the time, comprehensive income redistribution policies would have been necessary to address potential global social unrest. However, a geopolitical conflict between China and the United States could have been avoided.
Historians will debate why China did not open up its markets. Here I will briefly summarize what I have been writing about over the years.
Ultimately, China's reluctance to open its markets stems from a complex combination of party desire to maintain power, arrogance, and disillusionment with the American political model. Many Chinese experts, once enthusiastic about the United States, have become skeptical of the U.S. model in the wake of U.S. failures in Iraq and Afghanistan and the 2008 financial crisis.
Now, Russia's problems in Ukraine and China's own problems may be starting to change some perceptions in Beijing. In that case, the path to restoring America's image may also become a factor in the current situation.
This essay first appeared in Settimana News and is republished with permission.You can read the original article here.
