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Think tank: China deal does little to protect US advanced industries

May, 12 2017, 11:01 AM

Editor's note: China will finally open its borders to U.S. beef while cooked Chinese poultry is closer to hitting American supermarket shelves as part of a U.S.-China trade agreement., but the deal does little to help advanced American industries, says the head of the Information Technology and Innovation Foundation.

WASHINGTON - The Trump administration deserves credit for taking seriously the need to increase U.S. exports to China. But the initial results of the 100-day action plan of the U.S.-China Comprehensive Economic Dialogue indicate that the Chinese government has shown once again that it can out-maneuver the U.S. government when it comes to bilateral trade issues.

For the prior two U.S. administrations, China has employed a delay-and-diversion strategy on trade that succeeded in protecting brazenly mercantilist economic policies that run counter to its obligations under the World Trade Organization, among other commitments. Now China has entered into a joint 100-day action plan with the Trump administration. But rather than secure real concessions on the critical issues facing the U.S. economy—especially the rampant practice of “innovation mercantilism” that wrests away U.S. market share in advanced industries such as computing, semiconductors, aerospace, automobiles, Internet services, clean energy, and cloud computing—the plan instead opens up Chinese markets for some commodity-based and finance industries in return for giving China free rein to use its massive foreign reserves to buy up American companies in advanced industries.

As I testified to the House Foreign Affairs Committee, “The current and emerging challenge will be around advanced industries that the United States currently leads or holds strong global positions in, because those are the industries China is now targeting for dominance. I urge you to consider what a world would look like in 15 years where U.S. technology jobs in industries as diverse as aerospace, chemicals, computers, instruments, motor vehicles, medical equipment, pharmaceuticals, semiconductors, and software and Internet are significantly reduced due to Chinese policies focused on gaining global market share in those industries.”

Going forward, it will be important for the Trump administration to move beyond a simple focus on the trade balance to a focus on the kind of two-way trade with China that supports America’s competitive advantage in advanced, knowledge- and technology-based industries. Otherwise, we could very well envision a world in which U.S.-China trade is in balance, but where the structure of both the trade that is occurring and the two national economies themselves has radically shifted. Without a significant course correction, China’s exports and economy will be made up of more higher-value-added advanced industries, while America’s exports and economy will become more focused on agriculture, natural resources, and finance, as its advanced industries wilt across the country, including in the industrial heartland. At this rate, America risks going back to being an economy made up of ‘hewers of wood and drawers of water.’

It is encouraging that the Trump administration has said these initial results of its bilateral engagement are only the beginning. Moving forward, we urge the administration to demand real changes in Chinese policies related to America’s advanced industries. That should start with the first meeting of the Comprehensive Economic Dialogue in the summer of 2017.

For more analysis of China’s “innovation mercantilism” and how to stop it, see: “Stopping China's Mercantilism: A Doctrine of Constructive, Alliance-Backed Confrontation” at:

https://itif.org/publications/2017/03/16/stopping-chinas-mercantilism-doctrine-constructive-alliance-backed





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