Bloomberg’s article “How Trump’s Trade War Built Shein, China’s First Global Fashion Giant” on June 14, 2021 tells the story in details. If interested, readers can read the article at https://www.bloombergquint.com/business/online-fashion-giant-shein-emerged-from-china-thanks-to-donald-trump-s-trade-war.
According to the article, due to tariff hikes of Trump’s trade war, China has exempted export duties for direct-to-consumer companies such as Shein to reduce their export costs.
The article said that the trade war puts Shein and companies like it “in a good position in the U.S., where packages worth less than $800 have been able to enter the country duty-free since 2016. When the Trump administration later imposed tariffs to make Chinese products more expensive, the small-value shipments remained exempt.”
The above enables Shein’s goods to continue to enjoy the low-cost advantages of Chinese exports. As a result, the seven-year old company Shein is able to upend a $36 industry by beating world famous brands such as Inditex SA’s Zara and Hennes & Mauritz AB with its supply-chain savvy, data-driven clothing design and the intriguing exploitation of US tax loophole, etc.
According to Supchina’s article “A look inside Shein, the $45 billion retail enigma upending the global fashion industry” on June 9, 2021 (at https://supchina.com/2021/06/09/a-look-inside-shein-the-45-billion-retail-enigma-upending-the-global-fashion-industry/.) Shein keeps a very low profile and refrains to provide information about it so that Supchina regards it as an enigma. However, its tremendous success and huge sales make it impossible to avoid limelight.
This blogger believes that there must be quite a few similar success stories of Chinese companies but not so sensational, otherwise how can China maintain its huge volume of export to the US in spite of US excessive tariff hikes. As all those companies adopt the strategy of keeping secret of their successes, the US not only fails to win the trade war but even does not know how it has lost the war.
Artocle by Chan Kai Yee
Reuters June 9, 2021 7:31 AM HKT
The Biden administration wrapped up an initial 100-day review into what it can do to secure access to critical goods from semiconductors to batteries, pharmaceuticals as well as strategic minerals like rare earth elements.
President Joe Biden ordered the review of critical supply chains in February, worried that the United States was falling behind after it struggled to gain access to critical goods during the COVID-19 pandemic. Here are some of the major recommendations and initiatives developed by U.S. executive agencies.
TRADE ‘STRIKE FORCE’
The United States will target China with a new “strike force” to combat unfair trade practices that the administration says are damaging U.S. supply chains. The group will be led by the U.S. trade representative, which has the power to enforce tariffs against China and other countries.
NATIONAL SECURITY TARIFFS?
The Department of Commerce is considering initiating a Section 232 investigation into the national security impact of neodymium magnet imports used in motors and other industrial applications, which the United States largely obtains from China.
To address supply bottlenecks from lumber to steel that have raised fears of inflation, the administration is starting a task force focused on homebuilding and construction, semiconductors, transportation, as well as agriculture and food.
BRINGING DRUG MANUFACTURING ONSHORE
The administration will use the Defense Production Act to accelerate efforts to manufacture 50 to 100 critical drugs domestically rather than relying on imports. Biden already used the Korean War-era law to boost production of vaccines and other critical medical supplies in response to the COVID-19 pandemic.
The Commerce Department would work to “facilitate information flow” between chip makers and end users and increase transparency, and to resolve a shortage in semiconductors that has curbed production of goods including new cars.
New government working groups will look to reform mine permitting laws and identify sites where critical minerals in batteries can be produced and processed “while adhering to the highest environmental, labor, and sustainability standards,” according to a fact sheet.
The U.S. Development Finance Corporation will also expand international investments in critical mineral projects.
The Department of Energy will also use $17 billion in loans it can make to help manufacturers of advanced technology vehicle batteries.
Note: This is Reuters’ report I post here for readers’ information. It does not mean whether I agree or disagree with the report’s views.
Former US President Trump believed that he won the trade war launched by him against China as Chinese exporters have to pay the excessive tariff hikes imposed by him on Chinese exports to the US. But now according the Moody’s report quoted by Hong Kong newspaper hket in its report “‘China-US wrestle’ Who wins and who loses?”, since the tariff hikes of the 20% hikes US importers paid 18.5% while Chinese importers, only 1.5%.
The importers has to include such tariff hikes in the price increases to be borne by US consumers but US government’s tariff income has greatly increased. As US government is hard up, Trump’s successor Joe Biden has to maintain the tariff hikes to increase its income. Poor American common people, US trade war against China hurts American people instead of China.
Biden perhaps believes he can exploit the trade war as an excuse for consumer tax hikes to increase his government’s income since Americans’ hostility toward will make them willing to pay high tariffs in support of US trade war against China. Therefore, he maintains Trump’s trade war and other policies against China though he opposes nearly every of Trump’s policies.
Comment by Chan Kai Yee on hket’s report, full text of which in Chinese can be viewed at https://inews.hket.com/article/2960435/%E3%80%90%E4%B8%AD%E7%BE%8E%E8%A7%92%E5%8A%9B%E3%80%91%E8%B2%BF%E6%98%93%E6%88%B0%E8%AA%B0%E8%B4%8F%E8%AA%B0%E8%BC%B8%EF%BC%9F%E3%80%80%E7%A9%86%E8%BF%AA%E5%A0%B1%E5%91%8A%EF%BC%9A%E7%BE%8E%E5%9C%8B%E4%BC%81%E6%A5%AD%E6%89%BF%E6%93%94%E5%A4%A7%E9%83%A8%E5%88%86%E6%88%90%E6%9C%AC.
Competition usually aims at gaining advantages over one’s competitors instead of killing them, but a hostile competition like US’s aimed at killing its competitor is certainly an act of hostility toward an enemy.
With such severe hostility, why does the US not fight a hot war with China? Because it is not able to. First, with unsuccessful wars in Iraq and Afghanistan that have caused the US heavily in debt, US people are now fed up with war. In addition, as China and Russia have made great efforts to grow stronger militarily, the US is not capable now of defeating China that may have Russian assistance.
What about China?
Since the US regards China as its enemy and has been carrying out an all-out war except hot war with China, China certainly shall do as the Chinese saying “One should make a return to what one has received.” Therefore, we can be certain that China will fight back in return.
How? When Chinese military has grown much stronger than US’s decades later, it may launch an all-out naval war to put an end to US hegemonic dominance of the oceans.
What about now when Chinese Navy is weaker than US?
When Chinese military is weaker than its enemy, it can exploit its geographical advantages in the South China Sea.China wants the US to be its partner of win-win cooperation, but the US regards China as a “competitor”. However, the word “competitor” here is but a euphemism for “enemy”. The US is now conducting a trade and tech war with such severe hostility that it simply wants to kill its “competitor” such as China’s telecommunication giant Huawei It has seven artificial islands with long airstrips on three of them able to deploy 600 warplanes in all.
Together with the airfields and missile bases on shore in Southeast China, China will have great air superiority over one or two US aircraft carrier battle groups.
Japanese Navy and the rest US Navy will not have enough time to rescue US Navy in the South China Sea as they could not go directly through the Taiwan Strait. The air and rocket forces on Chinese shore may inflict heavy losses on them. They could only go to the battleground through Bashi Channel, but may be intercepted by Chinese submarines. China has a lot of very quiet conventional submarines to operate at the South China Sea as the Channel is not far away from their bases in Hainan Island for conventional submarines to operate. The first island chain has long been used by the US to encircle China, but in such a battle in the South China Sea, US Navy will be encircled by the first island chain while its reinforcement will be blocked by the chain.
Such an ambush is much better than amphibious invasion of Taiwan. In an invasion, US and Japanese warships may come to Taiwan’s rescue quite fast in Western Pacific and US warplanes may use Japanese and Taiwan airfields.
That is why Chinese fishing boats and coastguard and navy ships are so busy now in the disputed waters to upset the Philippines. China hopes that the US may send aircraft carrier battle groups to the South China Sea to perform their obligations to defend the Philippines. If US fleet attacks Chinese vessel, China will have the excuse to defeat US fleet in the South China Sea.
According to Reuters’ report “Philippines files new diplomatic protests over Chinese boats in disputed waters” on April 14, 2021, China has massed more than 240 boats within the waters claimed by the Philippines. The Philippines protested but to no avail. Philippine Foreign Secretary Teodoro Locsin phoned US Secretary of State Blinken to complain and Blinken promised help but US fleet soon leave the South China Sea without giving the Philippines any help.
Article by Chan Kai Yee
In my last post “Russia-China Alliance Remains if US Threat Removed” , I said, “Chinese leaders are wise to launch their Belt and Road initiative (BRI) to seek win-win cooperation with other countries for mutual benefits. Russian leaders are wise to enjoy the benefit of BRI as Russia’s underdeveloped east and north lie precisely in Silk Road economic belt.”
In order to develop the areas, there has to be win-win cooperation between China and Russia in building infrastructures for connection. CGNT says in its report “First Sino-Russian rail bridge to boost connectivity and trade” on April 15, 2019 that the two nations have built their first cross-border railway bridge with annual throughput capacity of 21 million metric tons. The report can be viewed at https://news.cgtn.com/news/3d3d514e306b544f33457a6333566d54/index.html.
Through the bridge Russia will export iron ore, coal, timber, etc. to China while China will send consumer goods to Russia. Moreover, the report says, “(M)ore Sino-Russian cross-border infrastructure programs are expected to be completed soon, which will make northern China a corridor towards central Asia and Europe.”
According to the report, the Russian Jewish Autonomous Region nearby is trying to attract more Chinese enterprises to their advanced development zones. The goods produced in and exported from the region to the US will certainly not be affected by the tariff hikes imposed on China in 2018 of US trade war with China.
Moreover, Russia has lots of virgin land in Siberia to be used for production of soybean and other crops to replace China’s imports from the US.
Russia will thus help China in resisting US trade war attacks and benefit itself.
Previously, I said that US containment of both Russia and China has made possible the Russia-China alliance that had been impossible due to the historical enmity and conflict of interests between Russia and China. In my last post, I said as the alliance of necessity between the two to resist US containment has turned out to be an alliance of mutual benefit, the alliance will not break if US threat has been removed. Now, US trade war has made the alliance even more mutually beneficial as due to the trade war, Russia can use its vast land to produce agricultural goods to replace China’s imports from the US. China’s demand for such imports will keep on growing as Chinese people grow increasingly rich along with China’s economic growth.
Russia will get the opportunity of development thanks to US trade war while the US will suffer. Who can the US blame? The one who starts a war must suffer the damages and pay the costs of the war. That is true for all wars. Trade war is no exception.
Article by Chan Kai Yee
China’s Arms Race Does Not Aim at Competition with US
Usually a race is a competition among a few runners who compete with one another. There must at least be two runners to compete with each other. China’s arms race with the US is unique. It is a game of China running to catch up the US while the US is running on its own alone without knowing that China has been running hard to catch up with and surpass it. It was until several years later in late 2017 that the US realized that and described China as its major competitor in its National Security Strategy.
Too Late US Realized China’s Arms Race with it
Now, China’s arms race with the US has become an arms competition between China The US regards China as its major competitor but do not know how to compete with China. First of all, for a longtime, the US does not know China has been conducting arms race with it.
As a result, in the period of US ignorance of China’s arms race, US military has been slow in developing advanced weapons and wasted lots of resources in developing Littoral Combat Ships without designed fire power and excessively expensive Zumwalt-class destroyers that use cannon ammunition that the US cannot afford. In the years of China’s arms race with the US, China has made great achievements in upgrading its J-10, J-11 families of fighter jets, developing J-20 stealth fighter jets, Y-20 large freight airplanes, supersonic missiles, advanced ICBMs, etc.. Its navy has developed its homegrown aircraft carriers, J-15 carrier-borne fighter jets, Type 75 helicopter landing dock, Type 055 destroyers, advanced nuclear submarines, etc. In addition, China has upgraded its Beidou Navigation System to expand the area of its services.
US Puzzled by China’s Speed of Military Modernization
When the US became awar of China’s rapid military modernization, it is puzzled and wonders China’s goal of arms race with it. The US always regards China’s military buildup as aiming at achieving A2/AD capabilities in spite of Chinese military experts’ denial and China’s statement in its national defense White Paper that its national defense strategy is active defense. A2/AD (anti access/area denial) is mainly passive defense while active defense stresses attack for defense and even regard attack as the best way of defense. Therefore, for active defense, China is developing weapons to attack the US and at best its homeland. That is why it is developing spaceplanes, long-range bombers, supersonic weapons, advanced nuclear submarines, etc. that are able to attack US mprove relations with Biden Administration and hoping Biden will reverse Trump’s anhomeland.
Now, China is so confident that it will win the arms race and sure that US trade and tech wars attacks are unable to hurt China in the long run so that it does not make big tests of US new Biden Administration as pointed out in Foreign Policy’s article “Stop Looking for Beijing’s Big Test of the Biden Administration” on February 5, 2021. Chinese diplomats have been making efforts to revert America’s anti-China policies but have not softened China’s firm attitudes against Biden’s succession to Trump’s policies.
China’s top diplomat regards such reverting as correction of Trump’s mistakes and told US Secretary of State Antony Blinken to correct the mistakes in his recent phone call with him.
Article by Chan Kai Yee
Plan for Long-term Victory
In the long run, China’s Belt and Road initiative (BRI) will bring economic growth to developing countries and expand China’s market there. It will enable China to switch lots of its exports from the US to those countries. Moreover, BRI will enable China to move the industries that produce goods for export to the US to the industrial parks built by BRI in those countries to avoid US tariff hikes and reduce labor costs. China will thus establish its invincible position in its trade war with the US.
According to Sun Tzu, in a war one has to establish one’s invincible position and do not miss the opportunity to defeat one’s enemy (立於不敗之地而不失敵之敗也）。.
Regarding to trade war, China is an entirely different country. Its government has centralized power to ban the import of enemy’s goods without tariff hikes. Its reduction in purchase of US agricultural products can do much greater damages than US tariff hikes on Chinese exports.
Trump’s Ingenious Move without Surprise
Seeing that tariff hikes are unable to subdue China, US President Trump tries another way to attack China. He remembers well that China’s telecom giant ZTE would have been killed by US Congress if he had not interfered in its favor. He saw his opportunity to subdue China through attacking Huawei, another Chinese telecom giant.
Americans have already been jealous at Huawei’ leading position in 5G in the world. Trump took the lead in banning Huawei’s 5G in the US and has been telling other countries also to boycott Huawei’s 5G with the lie about Huawei’s espionage on behalf of the Chinese government. Failing to make all other countries ban Huawei’s 5G, Trump invents a much more evil way to kill Huawei by placing Huawei in US trade blacklist to cut US supplies of components and technology that Huawei needs for its survival.
Now tariff hikes are the frontal engagement in Trump’s trade war with China, but banning and placing Huawei in US trade blacklist are indeed an ingenious move that may do real harm to China..
US government’s large amount of tariff revenue from the hikes proves that the tariff hikes have failed to reduce Chinese exports to the US. It proves that the harm caused by tariff hikes to China is limited. Killing Huawei and threatening further killing of other major Chinese tech companies might have really made China suffer.
China has been prepared for Trump’s Ingenious Move
However, the Huawei move though Ingenious lacks surprise. At the very beginning of Trump’s trade war last year, Xi Jinping told Chinese firms to rely on themselves. He made Chinese firms realize the danger of dependence on US supplies of technology and components. Since then Chinese enterprises have been working hard to free from their dependence on US supplies.
It has especially been the case for Huawei. Trump’s banning and telling others to ban Huawei and US efforts to extradite Huawei CFO Meng Wanzhou have caused Huawei to develop substitutes for US supplies since long ago. When Trump placed Huawei on the blacklist, Huawei had already developed substitutes for US supply of components and been developing its own operation systems so that Trump is unable to win with that ingenious move.
China’s Ingenious Surprise Move
Banning supply of rare earth materials for the US may be China’s ingenious move but it also lacks surprise. There has now been too much media report on that now to warn the US about that. China bought rare earth technology from the US so that I do not think it is difficult for the US to develop the technology to produce substitutes.
In his recent visit to Russia, Chinese President Xi Jinping and his Russian counterpart President Putin concluded an agreement to develop bilateral trade and cross-border payments using ruble and yuan in order to bypass US dollar. That is an ingenious surprise move that hits the US where it is most vulnerable.
US economy will soon be surpassed by China. Its military is being caught up by China and Russia. The financial dominance of US dollar is the only strong point that still maintains. If the US has lost that dominance, there will be no US hegemony at all.
The agreement between China and Russia may set an example for other countries so that trade balance settlement everywhere may gradually be conducted through other currencies not only Russian and Chinese currencies. As a result, US dollar will no longer be the major currencies for trade and financial reserve.
In fact, most countries in the world want to put an end to US dollar’s dominance now. EU has developed Euro for trade settlement in EU. Malaysian PM Mahathir has suggested the use of gold as substitute for US dollar.
The US is hard up now. It does not have enough revenue to make ends meet so that it has to borrow lots of funds from other countries. However, it has no financial problem as it can issue as much US dollars as it needs due to the financial dominance of US dollars.
If US dollar is no longer the dominant trade and reserve currency in the world, the US will not be able to borrow as much as it wants for its excessive military spending to maintain its military hegemony.
Article by Chan Kai Yee
Chinese Gifted Strategist Sun Tzu’s Teaching
This blogger has mentioned Sun Tze’s teaching: In any war, one shall win with ingenious surprise move while conducting frontal engagement. (凡戰者，以正合，以奇勝。)”
The surprise ingenious move can be but a part of the frontal engagement. For example, the D-Day Normandy landing operations on June 6, 1944. The frontal engagement was across the strait between allied and German troops. The allied troops might invade Calais or Normandy. The choice of Normandy for the site of landing operations was ingenious as German defense there was weaker as Germany believed that Calais would have more probably been the site of invasion. As the time and date of the move were kept well in secrete, there was full surprise in the ingenious move.
In this case, the frontal engagement was across the entire English Strait Calais and Normandy while the ingenious surprise move to land in Normandy was a part of the frontal engagement.
Therefore, Sun Tzu says that there is unlimited variation in the relations between frontal engagement and ingenious surprise move. A specific commander in a specific combat shall have the talent to design his ingenious surprise move in his specific combat.
Trump’s Poor Strategy
According to Sun Tzu, one shall calculate his factors to win and lose a war before engaging in a war. Only when his factors to win exceed those to lose can he start the war.
Trump believes that his tariff hikes on Chinese exports will subdue China as China is unable to retaliate with equivalent hikes as US exports much less to China.
That is a naive calculation.
What counts is not the scale of tariff hikes but the extent of damages to one’s enemy compared with that of the enemy’s counterattack. That is very simple. In real war, what counts is not the comparison of the extent of fire power but the damages the fire power can do.
For example, in the last battle in Korean War, US troops kept on air raids and artillery bombardments on the Chinese troops stationed on hills. A unit of the Chinese troops hid in their tunnel and suffered no casualty. The only casualty brought about by US troops’ strong fire power was the death of three of the four members of an artist group who went to the tunnel through a long ditch to entertain the troops with their performance.
My older schoolmate Yu, the surviving artist, arrived at the tunnel alone. He did not know that his co-performers had all been killed but assumed that they had retreated as enemy shelling was too heavy. Yu, a lively boy 15 years old then, gave singing, dancing, rapping and joking performance alone and greatly pleased the troops. At that time, US air and artillery fire was so fierce that Chinese troopers were all confined in their tunnel like prisoners for days. It was really boring to stay in tunnel like that. Yu’s courage and performance greatly heightened Chinese troops’ morale. He was honored as a war hero later.
When US army attacked after repeated air raids and bombardments, they suffer much more casualty from the much inferior fire power of Chinese troops’ mortars, guns and grenades.
US Tariff Hikes Fail to Hit
US troops’ problem then was that its much stronger fire power did not hit while Chinese troops much weaker fire power hit.
It is the same with Trump’s tariff hikes. Most of the goods under tariff hikes are indispensable for US consumers and there are no alternative sources of goods of similar quality at similar low prices. China’s exports of those goods have not been affected because the prices of the goods increased to include the tariff hikes remain attractive. The US has to keep on importing such goods. As a result, US tariff hikes do not hit China. They, on the contrary hit the US itself by hiking American people’s living costs.
China’s Retaliation Hits US Farmers Hard
China’s retaliation of tariff hikes, on the contrary, hurt its enemy without harming its own people. Its tariff hikes on US agricultural products, especially soybean hit US farmers hard but do not harm its own as it can find alternative sources for such imports.
Belt and Road Became an Ingenious Surprise Move
In addition to the China-Pakistan Economic Corridor and China-Myanmar Economic Corridor for China’s trade security to its west, China’s Belt and Road initiative (BRI) aims at building railways, roads, power plants and other infrastructures to facilitate removal of its labor intensive export-oriented enterprises to developing countries with lower labor and land costs. Xi Jinping launched that initiative for China’s transformation from export- and investment-geared to innovation-, creation- and consumption-led economic growth, but when Trump launched his trade war with China, it became China’s move to counter US trade war attacks.
Is it an ingenious move? Certainly it is, as it will shift China’s trade surplus to the countries China has moved its export-oriented enterprises to.
Is it a surprise move? It depends. As the West, especially the US, regards BRI as a move to enhance China’s geopolitical influence instead of a trade war move, it is then a surprise move indeed.
Article by Chan Kai Yee
China’s development may make it world leader in technology. That is what the US fears the most. However, China’s transformation to innovation- and creation-led growth may precisely make China world leader in technology. Trump unknowingly helps China conduct such a transformation with his trade war with China
At first, the US was not afraid of China’s advance in technology as China only strived to obtain transfer and licensing of the technology that was not most advanced and the acquisition of which may not enable China to compete with foreign enterprises that had or were developing more advanced technology.
China certainly wanted the most advanced ones but could not get it as no foreign enterprises were so stupid as to lose their competitive edge by allowing China to be as advanced as them. As a result, China has to invest much financial resources and talent to obtain the most advanced technologies on its own. That is certainly very difficult as such top technologies was very difficult to develop.
The US has been obsessed with the mindset that only the West is able to develop top technologies so that it believes that if the West refuses to transfer top technologies to China, it will be impossible for China to obtain them.
However, China has indeed obtained more and more top technologies. As the West, especially the US due to its pride and racism, does not believe that China is capable of doing so and as China has got the ideas for its development of such technologies through study of open Western books and documents or the photos and videos about the technologies, naturally the US assumes that China has obtained the top technologies by stealing or copying Western ones through hacking Western websites.
However, US experts, especially those in US military are clear about that but they are pleased with the fabrications developed by US politicians and media about China’s stealing and hacking to copy Western technologies.
A typical example is China’s stealth fighter jet J-20. As J-20 looks roughly like US stealth fighter jets F-22 and F-35, American media is fond of regarding it as the product developed by China through copying F-22 or F-35. They even invented the story of China hacked F-35’s developer Lockheed Martin to obtain the technology for development of J-20. However, it is clear to any expert that J-20’s canard structure is entirely different from F-22 and F-35.
Unfortunately, US dream about its technology superiority was soon broken by China’s success in developing technologies more advanced than America’s. For example, quantum communications. China has established quantum communications network much larger and even launched a quantum satellite.
It is sad for Trump as his predecessor Obama still regard the US as much stronger than China so that Obama believes that the deployment of 60% of US military in his pivot to Asia will be quite enough to contain China’s rise, but China’s fast development made Trump realize that China has to be regarded as America’s major competitor and may soon surpass the US.
Technology-related Demands Become Major Themes of Trade War Talks
Trump has tried hard to contain China’s rise in technology. He spreads the lies that China has been stealing US technology but for many years, I have been involved as a paralegal in some international law firms in establishing China-foreign joint ventures.
At the early stage of China’s reform and opening up, Chinese parties to joint ventures wanted acquisition of foreign capital and advanced technology, exports of joint ventures’ products to earn foreign exchange and provision of jobs for their employees. Foreign parties including American ones were shrewd businessmen very careful in their negotiations with the Chinese parties in setting up joint ventures. They believed that their in-house lawyers were not experienced enough; therefore, they usually hire International law firms as their advisers in the process. Anxious to protect their clients, the law firms would have collected lots of necessary information so that foreign parties knew well what the Chinese parties wanted. They were certainly not willing to allow China to get their best technologies for fear of losing their competitive edge.
During the negotiations on transfer or licensing of foreign party’s technology, I often heard Chinese engineers asking specific questions about more advanced technologies. The foreign parties usually would avoid revealing anything about such technologies. When they were cornered, they would give the straightforward replies that those were their trade secret that they could not reveal.
However, as China was very backward at that time, the Chinese parties were satisfied if the technology they were to get was better than what China had and the price or fee the foreign parties asked was less than their own potential research and development costs in obtaining the same technologies on their own. Moreover, it takes time to develop the technologies on their own but through the joint venture, the Chinese parties might get the technology much sooner.
As foreign parties had got more advanced and were developing even better technologies, they were willing to provide China with their less advanced technologies at reasonable prices or fees. Usually, they transfer their technology to the joint ventures as their capital contribution to the joint ventures or license the joint ventures’ use of their technology for reasonable fees. Therefore, negotiation on the transfer or licensing of technology was not difficult. On the other hand, foreign parties usually had no objection to the provision in joint venture contract that the joint ventures should employ the Chinese parties’ employees unless employees of required expertise were not available among those employees.
What foreign parties wanted was the access to China’s vast fast-growing market, for which the joint ventures shall sell substantial parts of their products on China’s domestic market but the Chinese parties wanted to export as large a percentage of the joint ventures’ products as possible in order to earn more foreign exchange. As a result, it was often difficult in the negotiation to decide the percentage of export in the joint ventures’ sales.
As China’s exports had gradually increased and as China’s private enterprises had mushroomed, exports and provision of jobs had become less important so that the focus had almost entirely turned onto acquisition of advanced technology.
Change in Trump’s Goal of Trade War
At first, Trump seemed to please instead of upset China. He withdrew from TPP that aims at containing China and started daughter diplomacy to improve US relations with China. China’s leader Xi Jinping was anxious to maintain good relations with the US, he treated Trump with exceptional hospitality when Trump visited China and as mentioned in my previous posts, thus began US-China honeymoon. Later, Trump complained China’s massive trade surplus with the US and started the trade war
Trump’s change from being friendly to troublesome and hostile seems quite strange for a man of his age and makes people believe that he is capricious. In fact, he is unfortunate instead of capricious.
At first, like his predecessors, Trump knows China may finally catch up the US economically but may not technologically unless China can obtain technology from the West.. He has taken measures such as the “America first”, control of immigration to restore US economic leadership so as to counter China’s rise. But he was so confident in US technology dominance as to believe that even if China’ economy has grown larger than America’s, China will remain backward with lots of low-tech enterprises. As a result, he did not think that the US needs any urge to develop new technology. Therefore, as soon as he took office, he told Pentagon not to replace steam catapults with electromagnetic ones However, He was shocked later to learn that China was also developing electromagnetic catapult and seems with better success.
As a result, in trade war negotiations, Trump demands that China gives up its plan of Made in China 2025 and stops providing funds for development of science and technology in order to contain China’s rise in science and technology. That is certainly unacceptable to China.
Article by Chan Kai Yee
As mentioned above the concessions Trump asked China for: the reduction of trade deficit, equal treatment between foreign and Chinese enterprises, protection of intellectual property and decision of Chinese currency’s exchange rate by the market were the major content of Chinese President Xi Jinping’s predecessor Hu Jintao’s further reforms and opening-up.
Hu had realized that China could no longer achieve economic growth with its old approaches of heavy investment in production capacity and increase in exports. First, the international market for China’s labor-intensive industries and products with low technology is saturated so that the heavy investment only caused overcapacity. Second, as CCP had raised workers’ living standards, their wages have been much increased to cause great reduction in the profit margins of China’s labor-intensive industries. China has to switch from export- and investment-geared economic growth to innovation-, creation- and consumption-led economic growth. The above-mentioned further reform and opening-up are indispensable for such a transformation.
China has to upgrade the technology of its labor-intensive enterprises. It has attained that goal in some enterprises but the workers unable to learn the technology have to be laid off to be replaced by employees with better education and skill.
Most of enterprises in labor-intensive industries are unable to upgrade their technology so that they have to move to areas with lower labor costs. In so doing, they have to lay off their Chinese workers and employ local workers with lower wages in the areas they have moved to so as to reduce their labor costs. There will be quite serious unemployment in China as a result.
The further reform, therefore, encountered serious opposition from the vested interests in those industries. The resulting unemployment problem also greatly worries the reformists.
Moreover, in order to urge enterprises, scientists, engineers and skillful workers to conduct innovation and creation, China has to treat state-owned, private and foreign enterprises equally to enable competition to force its enterprises to improve. China’s reformists with Hu and Xi as their leaders know well protectionism can only protect backward enterprises and cause them to lose the incentives for innovation and creation. However, that also encounters opposition from vested interests. Hu was unable to make progress in his further reform and opening up. Xi has also been unable to make fast enough progress of the reform and opening-up he has inherited from Hu due to the opposition and unemployment problem.
Under such circumstances, Trump’s trade war forces labor-intensive enterprises to upgrade or move to areas with lower labor costs. The misery of unemployment will be caused by Trump instead of Xi’s reform and opening-up
The introduction of competition with foreign enterprises and protection of intellectual property to satisfy Trump’s and other Western countries’ demand are what China had promised when it joined the WTO. Since China enjoys such treatment in Western countries, it certainly shall reciprocate. Otherwise, China will encounter protectionist obstacles there. Chinese intellectuals are clever and hardworking. The pressure of competition will force them while the protection of intellectual property will encourage them to innovate and create.
Trump’s trade war provides Chinese President Xi Jinping with the golden opportunity to speed up his further reform and opening-up. Xi certainly will delay the deal to end the trade war in order to keep the pressure until he has succeeded in moving abroad or upgrading China’s labor-intensive industrial enterprises and making Chinese enterprises accustomed to competition and have the urge for innovation and creation.
Article by Chan Kai Yee