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An Obstacle to Progress
U.S. actions are typical of a trade bully
By Chen Baoming | NO.29 JULY 19, 2018
 

 

A workshop run by Changan Ford, a joint venture between Changan Automobile and the Ford Motor Co., in southwest China's Chongqing Municipality on October 21, 2014 (XINHUA)

The U.S. imposition of additional 25-percent tariffs on $34 billion of Chinese products has ignited the largest trade war in economic history, blatantly violates WTO rules and represents the typical actions of a trade bully.

The excuse for the tariffs is the Section 301 investigation, which mainly targets technology transfer and intellectual property (IP). In a report released on June 21, the White House Office of Trade and Manufacturing Policy leveled ungrounded accusations at China for forcing the transfer of technology, violating IP rights and "stealing U.S. technology." The report, full of assumptions and fanciful evidence, represents U.S. hegemony in technology.

From trade bully to technology hegemon, the U.S. is determined to unilaterally destroy the rules of international trade and sabotage the global value chain. The rest of the world now faces the arduous task of safeguarding international economic rules and furthering economic and technological globalization.

The Trump administration's uncooperative attitude and disrespect for facts are clear from U.S. accusations of "forced technology transfer and IP theft." When trying to find a reason to condemn someone, a charge can always be found. The issuance of this report aims to validate the launch of a trade and technology war, despite the lack of logical reasoning in the document itself.

A blow to innovation 

Over the past 40 years of reform and opening up, China has made considerable progress in technology and the market economy. China's reform and opening-up program has contributed to a better-structured global value chain, helping create a global economy that is more interdependent, mutually beneficial and a driver of world economic growth. In the global division of labor, the United States, by virtue of its first-mover advantage and technological innovation, has occupied the high end of the global value chain, raking in hefty profits with core technologies and IP around the world.

The overseas expansion of U.S. enterprises targets more shares in the global market. The market value realized by U.S. technological innovation and breakthroughs via the international division of industry is the fundamental driver of technological progress in the country.

In a market economy, technology is never the ultimate goal but a means to gain profits and grab a bigger share in the market. The global value chain and system of IP are a set of systematic arrangements that allow U.S. enterprises to acquire the highest possible profits and maintain the country's global competitiveness. Developing countries had little say in the construction of either system, as they had little to bargain with beyond their markets.

The U.S. now intends to abandon the current value chain. So as to avoid the outflow of technology, it has taken measures such as restricting technology exports, forbidding overseas technology firms from accessing its market, restraining mergers and acquisitions by international firms and putting the brakes on the exchange of technology personnel. Superficially, these measures could curtail technological development of other countries by slowing down their pace of learning. But multinational and emerging tech firms that are already deeply integrated into global economic and technological development are facing the consequences of the destruction of the global value chain. If core technological breakthroughs fail to reap financial rewards in the broader market, the momentum of technological progress will be lost. After all, in a market economy, the best reward for technological progress is economic benefits.

Shutting the door to cooperation for fear of technology outflow is like giving up eating for fear of choking. After all, the huge demand for the improvement of people's lives is the biggest impetus driving technological advancement. No country's technological progress can be truly contained. The common interests of China and the United States lie in openness and cooperation.

Rewards of openness 

Through reform and opening up, China's status in the global system of labor division is on the rise. Rapid development has been achieved as China participates in the formulation of international rules and abides by them, a boon for every country involved in globalization. While opening up to the world, China has facilitated technological progress and innovation by investing heavily in research and development (R&D) and IP protection. China's R&D spending has surged by an average of nearly 20 percent year on year since 2000, reaching 1.75 trillion yuan ($262 billion) in 2017. It accounted for 2.12 percent of the GDP in 2017, surpassing the average level of the 15 EU member countries before enlargement in 2004, which stood at 2.08 percent.

China also attaches great importance to IP creation and protection. The country's number of accepted patent applications for inventions has topped the world for six consecutive years, with effective invention patents coming in third and international patent applications filed under the Patent Cooperation Treaty ranking second worldwide.

Behind the rising data, these achievements have been made with mounting investment and intensified IP protection in a developing country with per-capita GDP of only $8,800. China is demonstrating unparalleled resolve in observing and perfecting international rules.

China has never forced foreign businesses to transfer technologies. Foreign-invested enterprises (FIEs) carry out R&D in host countries for the purpose of increasing competitiveness in the market and claiming a bigger market share. As China's R&D resources intensify, FIEs tend to carry out R&D in China by utilizing Chinese domestic resources, making China an important link in the global R&D layout of multinationals. For instance, IBM has 12 R&D centers

worldwide, one of which is in China. China offers good services for FIEs conducting business and R&D activities, but does not make R&D localization a prerequisite of market access.

The spread of technology is an inevitable result of opening up and cooperation among countries. The system of IP and other international rules are in place to protect the interests of creators and inventors during the transmission process, so as to stimulate innovation and progress. The absolute protection of technology—taking routine technological transfer as a threat to national security—is narrow-minded. Although this is only a pretext for waging a trade war, it could wreak more havoc than the trade war itself as an irresponsible act which endangers global technological progress and long-term development.

The author is director of the Comprehensive Development Institute of the Chinese Academy of Science and Technology for Development 

Copyedited by Laurence Coulton 

Comments to zhouxiaoyan@bjreview.com 

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