Wednesday, March 21, 2018

Reversing the Global Chinese Takeover : Recalibrating to Beat China at its Own Game

"International trade creates diffuse benefits and concentrated costs. China's rapid rise, while enormously positive for world welfare, has created identifiable losers in trade-impacted industries and the labour markets in which they are located."
"[Too much of the economic discussion lately] has been focused on the one percent versus the 99 percent. It's become a kind of 'inequality porn' -- where you get so focused on those two numbers that it becomes demobilizing. You lose sight of the fact that there is a dramatic rise in the economic return to tangibly acquiring skills -- skills that are available and should be within everyone's reach."
"[The descent of meritocracy] is not about the returns to realized skills. It is about the inequality in the ability to acquire those skills. Too many people live in areas where they cannot get them. If you get educated in America today, and have a good work ethic, you are going to be rewarded. What does education do? It gives you a skill set and enables you to adapt to change better. And cities and towns anchored by universities tend to reinvent themselves more easily; they're engines of adaptation. of  higher education benefits not just college students but college places."
David Autor, economist, Massachusetts Institute of Technology

"Chinese and foreign makers are about to start sending huge numbers of fully built cars to the U.S. We are about to see a big increase in the U.S. trade deficit in automotive."
"[China has been shopping for more American goods to buy] but the U.S. is just not that competitive anymore in a lot of products other than oil, food and aircraft. And China is now in the test-flight stage for mass-producing its own jetliners as well."
Keith Bradsher, China expert

"No U.S. auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the U.S."
Elon Musk, Tesla Founder


What Mr. Musk was talking about is a grossly uneven playing field. When President Trump spoke disparagingly about the unequal playing field disproportionately serving Mexico's and Canada's interests in the North American Free Trade Agreement actually reflects America's trade relationship with China, the largest and most controlling goods producer in the world today. He was speaking of electric vehicle (E.V.) companies' operations in China and the U.S. Where American companies are forced to have a Chinese partner and transfer technology to them, while operating in China.

Recognized as one of the next great global industries China plans to use its own restrictive market access rules to gain control of the entire E.V. supply chain, and that will eventually include aerospace, quantum computing as well as a whole range of other advanced industries. The simple fact is that any technology company wishing to do business in China to take access advantage of its gigantic market, must agree to allow Chinese nationals to sit on their board, and to release protected technical information to them as a profit trade-off.

Trump would do well to rethink his rejection of the 12-nation Asia Pacific trade accord. The Trans-Pacific Partnership promised the elimination of up to 18,000 tariffs on U.S. exports to the dynamic economies in the Pacific. That giant trading bloc was to have been captained by the United States, its focus, to protect high-value-added manufacturing and intellectual property. It was constructed as a group whose purpose was to counterbalance China's virtual trading monopoly. China must have exulted when Donald Trump unceremoniously yanked the U.S. out of the TPP.

The recommendation for the United States is not only to reconnect with the TPP, but to return to China the very trade rules that work so well for it. China, ever eager to continue investing in the world's still-largest economy in the United States must be given to understand that to do so would necessitate that it agree to having Americans sit on its boards, and to release to them any industrial formulae those companies hold to be out of bounds, in a reflection of Chinese-generated trade rules.

China retained a 25 percent tariff on new cars it imported from the U.S. in contrast to the U.S. tariff of 2.5 percent, growing its own companies behind its protectionist wall and alloting those Chinese companies state funds until they were sufficiently competitive before releasing them to the world at large so they could compete with their U.S. counterparts -- once they had consolidated their vice grip on the market. The Detroit automakers who realize good profit in China must track with Chinese-only auto parts supply chain.

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