Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Paradoxical Rivalry of US and China for Industrial Innovation

Politics / GeoPolitics Mar 12, 2017 - 05:28 PM GMT

By: Dan_Steinbock

Politics By the early 2020s, rivalry for industrial innovation will accelerate between the U.S. and China. Ironically, the Trump White House has opted for a poor-economy industrial policy, whereas China has a rich-economy policy. The former seeks past glory; the latter cannot wait to get to the future.


According to the Trump administration, after the 2008 recession, American workers and businesses have suffered the loss of some 300,000 manufacturing jobs and the slowest economic recovery and since World War II. Consequently, one of President Trump’s key issues is “bringing back jobs and growth.”

To get the economy back on track, the White House plan is to create 25 million new American jobs in the next decade to restore 4 percent annual economic growth. In contrast, China’s recently-introduced five-year plan is predicated on rapid progress in advanced manufacturing and innovation capacity.

Curiously enough, the U.S. focus is on the kind of industrial policy that usually typifies less developed economies, whereas China is engaged in innovation strategy, which usually predominates in relatively wealthier economies. What will be the outcome?

Trump’s medium-term industrial objectives

The Trump administration is not the first one to seek the revival of U.S. manufacturing exports. “We will double our exports over the next five years, an increase that will support 2 million jobs in America,” President Obama said in his first State of the Union speech in 2010. While Obama’s National Export Initiative increased concern for protectionism and trade friction among America’s big trading partners, it gradually faded away, along with other Obama legacies.

Today, world exports amount to almost $18 trillion annually. Almost half of the total can be attributed to only eight export giants, including the European Union ($2.3 trillion), China ($2.0 tr), US ($1.5 tri) and Japan ($0.6 tr), followed by South Korea, Hong Kong, Netherlands, and Italy.

In order to raise U.S. export strength by a magnitude, Trump chose Harvard-trained economist Peter Navarro to head the newly-created National Trade Council (NTC) in the White House. Now Navarro’s job is to oversee industrial policy, while targeting the trade deficit is expected to pave way to Trump’s “First America” trade protectionism.

Navarro is a Republican insider who advised President George W. Bush and Mitt Romney’s failed campaign. As I warned over 3 years ago,  Navarro and former Nucor CEO Dan DiMicco, another Trump Trade adviser, represent not just trade protectionism but an effort to mainstream anti-China bias in America. In this effort, a key executor of Trump’s mandate is billionaire Wilbur Ross, a bankruptcy expert who made his fortune from bankrupt US companies and offshored jobs.

Until recently, the new industrial policy has been initiated in relatively small scale with relatively narrow impact. Conversely, if it is adopted on a broader basis, the impact could be substantial and unleash – not so much higher but slower growth, due to fewer productivity gains – but rising inflation, retaliation from trading partners and lower equity prices.  There is a historical precedent. In 1930, the US Congress passed the notorious Smoot-Hawley Tariff Act, which sharply raised the cost of foreign imports. While it seemed to work initially, it soon caused other nations to retaliate.

China’s medium-term industrial policies

As advanced economies remain mired in stagnation while avoiding necessary changes, China is moving to broader implementation of structural reforms and toward new industries fueled by innovation-driven development.

As evidenced by the recent Two Sessions summits in Beijing, the new five-year blueprint incorporates many recent technology-related initiatives, including Strategic Emerging Industries (SEI), Sci-Tech Innovation 2030, Internet Plus, and Made in China 2025.

China is now adopting priority technologies such as the “Internet of things”, “big data”, and smart manufacturing to move higher in the production value chain and several key sectors. There are some 75 priority technologies, almost 60 more than in the previous plan. Take, for instance, robotics. In 2015, Japan still dominated the manufacturing of industrial robots, with 60% of the global total. By year-end 2016, China was tripling the annual production of robots to 100,000 in five years.

In the process, the role of advanced manufacturing, modern services and strategic emerging industries as a proportion of GDP will rise significantly in China. Now a record high R&D per GDP (2.5%) has been earmarked to fund scientific and technological R&D, to build science and technology programs, first-class national science centers and technological innovation hubs, and help develop internationally competitive high-innovation enterprises.

In 2010, Chinese R&D as a share of the GDP was still relatively low (1.6%). By 2020, the figure will be higher than the EU average and at par with most advanced economies (2.5%); and close to that of the US (2.7%).

Paradoxical rivalry

After the devastation of Western Europe and Japan, U.S. exports dominated the world economy until reconstruction and revival in other major advanced economies. Historically, U.S. share of global manufacturing value added declined from 29% in the early 1980s to 19% in 2015. Since the burst of its asset bubble, Japan’s share of global manufacturing has plunged to a third, or about 7%. In the same period, German exports were almost halved to less than 6%, despite relative benefits from the European sovereign credit crisis.

The declining export shares of advanced economies reflect the rapid increase of manufacturing activities in the large emerging economies, especially China which replaced the U.S. as the largest manufacturing nation in 2010.

As a result, employment in manufacturing has fallen in most major manufacturing countries but risen in many large emerging economies over the past quarter-century. Due to the emerging economies’ low-cost advantage and offshoring, which took off in the U.S. technology sector already in the mid-80s, advanced economies tend to focus more on higher value-added, which is their comparative advantage.

As the U.S. is now opting for a very different industrial policy, the net outcome could actually contribute to longstanding relative deterioration of U.S. innovation. That, in turn, could further contribute to the longstanding relative decline of U.S. innovation in both civilian and defense industries.

As evidenced by recent research, U.S. global innovation leadership continues to falter and is in danger of flat lining.  While still most innovative in the world, the U.S. defense leadership is no longer assured and is in danger of failing. Due to the fact that defense innovation in the U.S. accounts for about half of total innovation, this decline is not only impacting defense innovation and capabilities, but also overall commercial innovation and U.S. competitiveness.

Net outcomes by early 2020s

In contrast to Obama, Trump hopes to facilitate US growth with a “pro-growth tax reform,” and re-negotiated or rejected trade deals to “bring good-paying jobs to our shores and support American manufacturing, the backbone of our economy.” His hope is to unleash economic growth, and to create 25 million new jobs.

In reality, the reliance on new policy instruments (lower taxes, aggressive deregulation, new energy exports), may boost U.S. economic fortunes in the short-term but contribute to broader deterioration in the long-term (deeper income polarization, social costs of misguided deregulation, environmental hazards associated with forceful shale extraction). Sustained high-growth performance is highly unlikely to return – and the same goes for large-scale job-creation.

Paradoxically, the Trump administration seems to be trying to achieve progress in secondary priority areas where it is destined to generate minimal or transient progress, while ignoring viable advances in those areas of competitiveness and innovation, where it could thrive.

If this proves to be true, then China may not just be positioned to reap the benefits from its accelerated secular reforms – but also from those of US policy mistakes.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in