National vs. Corporate Interests – USA and China at the crossroads
“America First.” “Hire American. Buy American” – Donald Trump’s idea of a new strategy to protect and stimulate the national economy is actually not far away from China’s strategy of “Made in China 2025”. This strategy, however, aims at the acquisition of foreign technological knowledge to push China’s own manufacturing sector.
We spoke to Rolf J. Langhammer on Trump, China’s new approach and how this may turn out in a globalized world.
GESblog: Prof. Langhammer, import tariffs, restrictions to subsidies and tax incentives for companies to make the produce within country boundaries – are we talking about China or the U.S.A.?
Prof. Langhammer: It’s kind of funny that based on these steering instruments you couldn’t distinguish both countries. Yet, on the U.S. side, these are still words, and we need to wait how Trump’s plan is going to work out. Such government targets clash with internationally active companies and corporations. And there are many of them in the U.S., and there are more and more in China.
GESblog: So you think this will be hard to put into place in the U.S.?
Prof. Langhammer: It is a paradox we see here. On the one hand, Trump wants to regulate the free flow of products and services to protect and stimulate the national economy. That was his campaign strategy. On the other hand, he as a businessman should know that companies’ goals are not national but corporate. They want to boost their businesses, gather knowledge and other assets within their company boundaries, hire skilled staff and purchase technology and other assets wherever it’s best for them. They must be able to do their best to beat their competitors. It will be hard to persuade the companies to follow Trump’s strategy if not impossible.
GESblog: How is China’s approach different compared to Trump’s?
Prof. Langhammer: The situation is different in China. The idea here is to make Chinese companies fit for the global competition. And they don’t need a host country with cheap labor. They need the knowledge. So the global foreign direct investments (FDI) of Chinese capital are subject to one overarching target: gaining access to new knowledge, new funds and new markets. And this is not only the case for privately owned companies, but it is also in line with the government’s strategy of creating national champions that can compete both in China and globally.
GESblog: What measures do the Chinese take to achieve their goals?
Prof. Langhammer: Although Chinese companies are still more closely associated with their government’s goals compared to those in democratic countries; they already start to behave like global players. For example, in 2015, Huawei Technologies Co. Ltd. invested about USD 170 million in India, creating its largest R&D project outside of China. So they are willing to create new knowledge outside of China’s borders if this knowledge benefits the company’s innovation and global expansion.
GESblog: This example, however, fits well into India’s strategy of “Made in India”.
Prof. Langhammer: Yes, the Huawei project in India is explicitly tied to this Indian industrial policy “Make in India.” It generates employment for nearly 5,000 Indian software engineers.
GESblog: So it is “Chinese” knowledge, generated by Indian engineers, to boost a privately owned Chinese company to be globally competitive.
Prof. Langhammer: That’s the idea, but once these engineers change countries or employers or set up their own enterprises, the “Chinese” knowledge generated at the Huawei facility is spread around the globe. In a globalized economy, technology transfer, or rather diffusion goes both ways. Furthermore, based on their business interest, these companies will share their knowledge and enter partnerships – regardless of their national government’s industrial policy goals.
GESblog: The Chinese government would probably not be very happy about that.
Prof. Langhammer: Certainly not, but restricting Chinese companies from doing that would harm them even more. And we must not forget, that foreign companies continue to produce and develop their products in China. A company like Siemens conducts research on smart traffic management systems and medical technology in its R&D centers in China. That knowledge is used in China and expanded to other emerging markets like India and Brazil to improve Siemens’ market position globally. And so are Chinese companies using their knowledge, wherever it originated, to compete both at home and globally.
Rolf J. Langhammer is a Professor of economics, former Vice President of the Kiel Institute for World Economy and expert on China’s economy. An opinion piece by the author on the same topic was first published on the Mercator Institute for China Studies’ blog “European Voices on China”.