China Tech Shrugged Off Trump 1.0 Trade War And Can Do It Again

But this, I believe, vastly overestimates Beijing's foresight and control. The Chinese government has indeed maintained the lofty goal of catching up with the West since the 1980s, but having goals isn't the same as being able to execute them.

Many in the West also point at Chinese state subsidies propping up domestic tech firms. While subsidies have played a role in some tech successes, the Chinese government has also funded plenty of failures.

Take semiconductors, for example: Despite enormous Chinese government investments since the 1990s, China still lags in producing cutting-edge chips and is reliant on imports.

In my view, China's technological dynamism didn't come from the magic of central planning, but through five key elements I call DREAM.

D denotes the dialogue between state and market.

While China's government wields significant power, the country's private sector is neither submissive nor powerless. In 2022, firms not owned by the state – mostly private firms but also offshore firms in which Beijing does not have a controlling share – accounted for 95% of enterprise R&D spending and 88% of urban employment.”

While Beijing has cracked down on tech giants – it banned Alibaba's Ant Group from listing on the New York Stock Exchange in 2020, and its Covid-19 lockdown hurt its private sector – the government is not, contrary to how it is seen by many in the West, bound by strict ideology. It has recently started to voice more support for the private sector, even drafting laws to protect private companies .

Indeed, it's more accurate to describe state-market relations in China as dynamic, adaptive interaction – more dialogue than dictatorship.

R refers to the domestic research and development (R&D).

Once reliant on imported technology, China has invested heavily in domestic research capacity over the past 20 years. Geopolitical tensions accelerated a shift toward self-reliance, but Chinese scientists and engineers remain deeply engaged in global networks.

Further, a nominally anti-espionage program brought in under Trump's first administration has swollen the number of highly skilled workers in China.

The“China initiative” introduced by the US Justice Department in 2018 – often without evidence – promoted the suspicion that Chinese and Chinese American scientists might be spying for Beijing, resulting in a flood of leading scientists heading back to China .

There they continued to undertake cutting-edge research and educate a new generation of Chinese scientists.

E is for the industrial ecosystem that China can exploit.

China's vast manufacturing base enables rapid creation and scaling of new technologies. In 2023, China produced 35% of all global gross manufacturing output , being the only country covering every major industrial sector.

China may not have the innovative ecosystem of Silicon Valley, which can draw on deep venture capital and a booming stock market. But it has built comprehensive supply chains over the years, and it's exceptionally good at repurposing them to rapidly bring new products to market.

Take the example of robotics. China took the robotics industry seriously only when labor costs rose sharply. In 2010, China's manufacturing labor costs were about US$2 per hour , similar to those of the Philippines or Vietnam; by 2022, that figure rose to about $8 per hour – more than double the average for Southeast Asian countries.

China now installs more industrial robots annually than the rest of the world combined, and the quality of its robots has grown by leaps and bounds.

A stands for accumulative changes.

Rather than aiming for novel breakthroughs, Chinese companies excel at incremental improvements – and this results in an accumulative transforming effect. The massive manufacturing networks create opportunities to improve upon existing products based on market feedback, rather than a few brilliant ideas from any leader's creative mind.

Analysts in the US have long expected China's rampant intellectual property violations to doom its innovation drive, the thinking being that it takes away the impetus for individuals to innovate if they believe such innovations will be stolen.

Instead, as Taiwanese tech expert and writer Kai-Fu Lee has explained, Chinese enterprises can be dynamic and innovative in an environment with less IP protection. They often rapidly expand their market share and build business ecosystems to prevent followers from catching up.

M means the middle market .

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Chinese firms tend to target middle-income consumers, both domestically and globally. By prioritizing affordability and functionality over cutting-edge innovation, they avoid head-to-head competition with Western giants such as Apple.

Chinese smartphone brands such as Xiaomi and Oppo are a third to half the price of an iPhone, but with similar functionalities. Chinese electric vehicles are similarly far less expensive than Tesla but still incorporate leading features.

Chinese firms tolerate lower profit margins, as they can rely on the expanded sales in the middle market, both domestically and, increasingly, overseas .

Tariffs as a counterproductive measure

The problem for the incoming Trump administration is that while tariffs might alter the global map of China's manufacturing and exports, they won't dismantle any of the DREAM elements. In fact, they could have the opposite effect of accelerating China's push for self-reliance and strengthening its foothold in global middle markets.

Part of the problem is that American policymakers often see technological competition with China as a zero-sum contest. But technological competition isn't like a race with distinct lanes and a finish line. Rather, tech transformation is a complex process in which countries and companies compete, collaborate and build on each other's work.

Ultimately, America's technological prowess won't be measured by the extent to which it manages to stop China, but by how successfully American companies can address humanity's greatest challenges. Attempts to hobble the competition through tariffs and trade wars will do little toward that end.

Yu Zhou is a professor of economic geography at Vassar College .

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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