Friday , August 17 2018
Home / Bruegel Think Thank / US Tariffs Aim to Contain China’s Technological Rise

US Tariffs Aim to Contain China’s Technological Rise

Summary:
While tension increases with each of the imports listed under the new tariffs, it now seems clear that the US are trying to slow down China's technological advances. Though such a protectionist attitude represents an obstacle, China should consider it an opportunity to strengthen relations with its Asian neighbours and the EU. This opinion piece has been published in Caixin Beijing’s attempts to calm down a furious U.S. administration (with promises of opening up sectors and a stronger yuan) do not seem to have convinced the White House to tone down its protectionist actions against China. Following two rounds of import tariff hikes earlier this year, the U.S. announced a 25% hike in import tariffs on 1,333 products exported from China to the U.S. at an estimated value of

Topics:
Alicia García-Herrero considers the following as important: , , , ,

This could be interesting, too:

Robert Kalcik and Georg Zachmann writes Export and patent specialization in low carbon technologies

G. P. writes The impact of artificial intelligence on employment

Jean Pisani-Ferry writes Is Europe America’s Friend or Foe?

S. T. writes La lunga marcia della Cina sui porti europei

While tension increases with each of the imports listed under the new tariffs, it now seems clear that the US are trying to slow down China's technological advances. Though such a protectionist attitude represents an obstacle, China should consider it an opportunity to strengthen relations with its Asian neighbours and the EU.

This opinion piece has been published in Caixin

US Tariffs Aim to Contain China’s Technological Rise

Beijing’s attempts to calm down a furious U.S. administration (with promises of opening up sectors and a stronger yuan) do not seem to have convinced the White House to tone down its protectionist actions against China. Following two rounds of import tariff hikes earlier this year, the U.S. announced a 25% hike in import tariffs on 1,333 products exported from China to the U.S. at an estimated value of $60 billion.

The given reason for this third round of measures is no longer national security (for tariffs on steel and aluminum) or safeguarding domestic industries (for solar panels and washing machines), but rather, China’s breach of intellectual property rights. In only a few hours China has stepped up its retaliation from a small package ($3 billion) targeting a few agriculture-related products to a much larger list of 106 products valued approximately $50 billion. More importantly, China’s targeted products are no longer low-end but include higher-end products, such as aircraft and automobiles.

We argue that the U.S. strategy has evolved over time from one in which the purpose was to reduce the U.S. bilateral trade deficit with China to a much more targeted but also relevant one, namely constraining China’s progress up the industrial ladder. This is evident from the fact that the U.S. has excluded most of its allies from the import tariff hikes on steel and aluminum and targeted only China with the most recent measures to protect U.S. manufacturers’ intellectual property rights.

US Tariffs Aim to Contain China’s Technological Rise

More importantly, out of the 1,333 targeted products, around 70% of them (by count) are high-end manufactures. In other words, the U.S. administration’s latest move has hit China where it hurts the most, namely its goal to upgrade its manufacturing industry, a key strategic plan called Made in China 2025. In turn, only 3% of the import products included in the U.S. list, are low-end products, which further supports our thesis of the U.S.’ final goal: containing China’s technological rise.

As for China’s reaction, it has clearly moved from shyness to aggressiveness ($3 billion towards $50 billion) and covered a very different set of products. A careful analysis of China’s imports from the U.S. by product can help us explain the reasons behind such behavior and, ultimately, the costs involved.

We argue that an effective retaliation by China should include products complying with two key conditions: First, China should be a large enough market for a specific U.S. export product so real harm could be inflicted on U.S. exporters in that specific sector. Second, the U.S. should not be China’s main sourcing country for that specific product. The reality is that only a few products, namely wood, aromatic hydrocarbon mixtures and waste copper, comply with these two criteria. In other words, China’s ability to execute a painless retaliation is very limited in terms of potential products. As the table below covering the universe of China’s exports to the U.S. shows, China’s first $3 billion package was quite aligned with the idea of a painless retaliation (see products marked in blue in aforementioned table) but this is no longer true for the second, larger set of targeted imports from the U.S. (products marked in red in the same table).

This is understandable as the U.S.’s intentions became clearer with the 1,333 product list. The U.S.’ attempt to contain China’s technological rise by limiting China’s exports of higher-end products has obliged China to raise the stakes and retaliate in a much more painful way, namely targeting higher-end imports from the U.S. While this may take a toll on the speed of China’s technological catch-up, it will all depend on whether other developed countries follow the U.S. in its protectionist move. In that regard, not only trade relations between China and the European Union are all the more relevant in this context, but also China’s relationships with Japan and South Korea.

About A. G.-H.
Alicia García-Herrero

Biography data hidden due GDPR Data Protection. Author consent pending.
(Economic Blogs is not responsible for linked external content)

Leave a Reply

Your email address will not be published. Required fields are marked *