The U.S. (or at least the Trump administration) and China are involved in negotiations over what the U.S. has labeled unfair practices. To “encourage” these negotiations, the U.S. has imposed tariffs on Chinese goods entering the U.S. and China has reciprocated by imposing tariffs on U.S. good. The U.S. has now threatened to increase the amount of the tariffs. A tariff is intended to make imported goods less attractive by raising the price of the imported goods. This penalty is paid by the importer and may or may not be passed on to consumers. So when Westinghouse imports Chinese aluminum to make washing machines it pays the penalty to the U.S. government, the company can either reduce its profit margin or pass the cost on to U.S. consumers who want to buy a washing machine.
As I understand the situation there are two major underlying issues. First, there is the trade imbalance in that the U.S. imports far more from China than it exports to China. Why? I assume this is because the U.S, consumer wants less expensive goods and businesses can get these goods cheaper from suppliers in China than from suppliers in the U.S. This is true in China for fewer goods (e.g., soy beans). On the surface, this might seem like the way capitalism works – you compete in the market place and the company offering the best products at the best price makes the sale. The U.S. can clearly compete in some categories (farm products), but not in enough to offset the desire of U.S. consumers for goods produced in China. How does the U.S. argue that a basic principle of capitalism does not apply in this case? I find this issue a difficult one to grasp, but at least part of the issue seems to have something to do with government meddling or support for production in ways that bias the cost of production. So, for example, in the case of “dumping” – the government subsidizes the cost of production in some way to allow a service to sell a product at below the actual costs to create the product.
The second area at issue involves the ignoring of copyright, patents, and the related problem of the theft of intellectual property. So if a company spends millions to develop a product, we assume the company has a right to deny other companies the opportunity to immediately copy this product while the company paying for the research first markets its own product. The cost to the company developing the product clearly is much higher than another company simply copying the product once it has been released. Problems in this category are difficult to attack externally. If Xiaomi makes a phone based on secrets from U.S. manufacturers (this is a made up example), it does not even have to sell these phones in the U.S. (it is blocked), but it can sell these phones elsewhere without having to make up for the research costs. Since you cannot effectively go after such companies directly, you must attempt to strike deals between governments to block such behaviors. If the government ignores you, you might try exerting leverage through tariffs on other products. Think of it this way – the U.S. could attempt to pressure China ignoring the unlawful behavior of those in the electronics industry by placing a tariff on aluminum. Farmers in the midwest and heavy industry concerns in China end up becoming involved in the battle over copied electronics. Citizens of both countries must understand and support this battle by proxy.
I have not spent a lot of time in China, but just walking down the street you see vendors selling copied goods. I have no doubt that China has strongly benefited from its government ignoring and perhaps encouraging the theft of intellectual property.
I am a globalist and I read a lot about how we all are becoming more and more interconnected. We seem to be in a time period in which we have international problems that we somehow think we can solve by withdrawing from collaborations. I fear we are putting this country in a situation where we complain a lot and end up being ignored by partners we have now abandoned because we think these partners are not doing their fair share. When you have the best economy in the world, you can’t count on other countries to feel sorry for you.
My thinking on modern China has been influenced by Kai-Fu Lee. Dr. Lee is an AI researcher and entrepreneur many might recognize from appearance on 60 minutes and the TED conference. Dr. Lee received his PhD from Carnegie Mellon worked for Apple, Silicon Graphics, and then Google in the U.S, before moving to China to work as an AI venture capitalist. His work offers an honest (in my opinion) appraisal of innovation in the U.S. and China and he argues that China is advancing to surpass the U.S. in the important areas. I recommend Dr. Lee’s book AI superpowers: China, Silicon Valley and the new world order.. For those not interested in reading his book, I would recommend this interview with Dr. Lee.
Dr. Lee suggests that software developers often begin as a copycat and then become an innovator. He acknowledges that this was been China’s pattern. They first created a Chinese version of Facebook or whatever social media platform, but then moved on to innovate on such starting points to fit the situation in China. Lee argues that this is a pattern that duplicates what has happened in other areas of the Chinese economy and the U.S. should not assume that China intends to advance its economy by relying on copying U.S. methods and innovations.
Lee suggests that it is important to recognize that the Chinese culture and government are different. The Chinese government plays a role in China that is very different from the way the U.S. works. When the government sets up a course or plan, the government acts much more directly. For example, the Chinese government has intervened directly in higher education to emphasis certain areas such as science and engineering. The government might take a similar approach to certain industries. Those in the U.S. might criticize China for government subsidies, but what is criticized in the U.S. is based on a U.S. model of how government should work.
Lee sees China pushing ahead of the U.S. in the important areas of AI, 5G, and sustainable energy. He argues that China does have to steal secrets to make these advances and has certain advantages that the U.S. cannot duplicate. In addition to priorities established from above, China has a far larger population of heavy cell phone users providing the massive amounts of data necessary for AI innovation. It can tap into these data because privacy issues are not taken as seriously and phone use plays a more important role among the Chinese. Lee claims that the core of the innovation – deep learning – has actually been around for a decade and what we now think of as innovation is more accurately described as application. If anything, Chinese companies are now copying and competing with each other to build products using AI.
I read what Dr. Lee has to say as a warning to the U.S.
