No great power relationship has been as volatile as that between the United States and China. The US and China are each too globalized and dynamic to contain, too successful and entangled with each other to divorce without causing another global financial and geopolitical earthquake. The United States is here to stay as a great power. China is back as one. The Middle Kingdom seems likely to become ever wealthier, technologically advanced, internationally prominent, and militarily powerful.
Much discussions on power shift and Thucydides Trap revolve around the supremacy of economic and military capabilities between Beijing and Washington. While President Trump’s erratic tactics to attack Chinese technologies sector has changed the frontier of a clash of titans.
As trade tensions escalated in the past few months, President Trump seems intent on preventing China from becoming great again. The catalyst for the trade war is China’s strident “Made in China 2025” industrial upgrade strategy introduced by Beijing in 2015.
“Made in China 2025” aims to achieve China’s eventual economic transformation from a low-cost manufacturing hinterland to a great innovation power. This remains the top priority of President Xi Jinping and his comrades in years to come. However, such a prowess has caused more fears than appreciations across advanced economies in the US and Europe. As an industrial development guideline, Beijing eyes are on 10 strategically and technologically important sectors, including information technology, biotech, robotics, aerospace and clean-energy vehicles.
President Xi’s team is tailoring the initiative to produce national champions that can lead China’s dominance in the above 10 sectors, with the aim of eventually replacing foreign technology with domestic suppliers.
However, there are three key reasons why China will not win the technological competition with the US within a short period of time.
Firstly, government intervention will bring more distortion than benefit over the long run. There is a fundamental difference between China and market economies, including the US, on macroeconomic management and the government’s role in the economy. Even after forty years of reform and opening-up, China still follows a model of state-run capitalism, while the US, which played a key role in helping create the current global trading system and the WTO, so far championed free markets and free trade until Mr Trump’s presidential victory.
The US government has taken a minimum-intervention approach to business. Washington believes that the role of government should remain as the “night watchman” as most Libertarian economists advocated.
In stark contrast, China’s leaders stress that a party-led and state-dominated economy is fundamental both to the future growth of the world’s second-largest economy and to the consolidation of Communist Party legitimacy to rule the country. China has decisively ignored a backlash on its policies from its major trading partners and competitors.
It is nothing wrong for China to develop “indigenous innovation”, but the centrally planned programme includes measures, incentives and other forms of market protection to support home-grown enterprises, which erode free market norms and possibly the WTO rules. For instance, under the initiative, Beijing intends to subsidise and provide loans worth around US$1.5 billion to domestic firms to pursue its objectives.
Secondly, the US’s unassailable lead to semiconductor sector manufacturing has been the successful result of Silicon Valley and world-class scientific research institutes for at least 50 years. This particular sector remains under US dominance without any formidable competitor.
Given that China, like the rest of the developed world, will rely on US core technology in semiconductors for the foreseeable future, Beijing may have little choice but to play by global trade rules. It would also be measured to commit more funding to original research and development in semiconductors, but without the bravado and the boastful rhetoric. The current leadership should take word of wisdom from Deng Xiaoping, when it comes to develop its indigenous technologies. “Hide your strength, bide your time” will not do much harm.
The US policymakers seem to see technology as an object, not an evolving process; as something static, rather than dynamic; as capable of being secluded rather than dependent on collaboration with others for its development; and it should only be monopolised by Americans rather than replicable by foreigners who understand its significances. This mindset in Washington has strengthened the Chinese case for making an even greater effort to promote indigenous innovation and self-sufficiency.
And lastly, Beijing’s strong sense of economic nationalism does more damage to China while it pursues “indigenous innovation”. Some in China want to seek revenge for the injuries of the colonial past and believe that they should protect domestic industries and make foreign companies pay premiums to do business in their domestic market. This will only weaken China in the long run. Trump’s trade war is ridiculous, but China has in some respects opened itself to resentment from trading partners upon which it depends.
President Xi's recent strident moves both at home and abroad have not put the Middle Kingdom in a comfortable position with the West. There has always been an overarching desire in certain political classes in Washington to confront with Beijing on multiple levels. China might quest for technological supremacy in the decades to come. But it has to realise that a technological power shift is a battle much harder to win than that between two titans in any other conventional fields.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Italian Institute for International Political Studies (ISPI)