Errors in economic policy and trade negotiations between the U.S. and China

Most observers welcome Recent virtual meeting Between U.S. Presidents Joe Biden With Chinese President Xi Jinping, although some politically sensitive issues remain unresolved. In terms of the trade war, there hasn’t been much change under Biden’s leadership.

Biden’s Buy usa Initiative, his commitment to “investing in the competitiveness of the middle class”, and updated Trade strategy Emphasizing unfair trade practices that damage American manufacturing companies has strengthened the inner sentiment of former U.S. President Donald Trump Phase One Agreement.

Although the United States and China differ on many economic policies, both sides have a misleading view that promoting manufacturing is the key to job creation, innovation, and security. Their respective leaders have not yet realized that the way to re-engage in trade more constructively lies in knowledge-intensive services.

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The American obsession with manufacturing is driven by politics related to the reduction of manufacturing jobs—a major concern for middle-class voters.But in China, the focus on manufacturing is driven by the leadership’s vision Global technology power. However, in the past year, Beijing Control Many startup companies.

These actions make people question China’s support for innovation. The premise is that the innovation economy relies more on “hard technology” manufacturing, such as artificial intelligence robots and electric cars, rather than “soft technology” services such as e-commerce and video platforms.

Both American and Chinese policymakers have ignored the lessons of economic history. After the Second World War, the economic strength depends to a large extent on the strength of the US manufacturing industry and the recovering Europe led by Germany. However, with the prosperity of the West, its economy gradually shifted to knowledge-intensive services. China and many other emerging market economies are following a similar path.

Politically speaking, the most important thing is not any actual decline in manufacturing production, but the evaporation of traditionally high salaries Manufacturing jobsIn fact, in the past century, American manufacturing production has been steadily increasing, not declining. During most of this period, the level of employment was relatively stable, but in recent decades, automation Technological progress has greatly reduced the demand for workers.

With few exceptions, as per capita GDP has grown in the past 30 years, all economies have experienced a decline in the share of manufacturing and an increase in services relative to total output.

The rapid shift to services supports the creation and sharing of technology domestically and with other countries.As Report According to 2016 statistics from the National Science Foundation, knowledge and technology intensive (KTI) services (from education and health to IT and financial services) accounted for 24% of global GDP, while KTI manufacturing accounted for 7%. The success of the US economy in terms of growth and innovation is driven by KTI services, which account for 32% of GDP, while KTI manufacturing only accounts for 6% of GDP.

Pew Survey According to the report, most Americans are aware that manufacturing jobs are evaporating over time. Many blames Trade deficit with China. The number of manufacturing jobs peaked in 1978 and has been declining ever since. As part of non-agricultural employment, manufacturing jobs fell from 38% before and after World War II to 8% in 2019.

But most Americans do not realize that the decline in employment started decades before the rise of China, or that although the share of manufacturing output in GDP has been declining, it is still growing steadily.

The decline in the share of manufacturing in GDP is due to deep-rooted structural factors. Technological advances are driving down the prices of manufactured goods at a faster rate than services. In addition, with the development of the economy, companies have shifted from manufacturing to the more profitable service industry.

Apple’s market prominence comes from its design and marketing services skills, leaving the actual manufacturing of the product to the Taiwanese company FoxconnIn addition, as income increases, household expenditures on services increase compared with manufactured goods.

The road to deindustrialization is now the norm in high-income economies. However, American political institutions continue to focus on small victories in high-tech manufacturing, rather than recognizing the key role of knowledge-intensive services in driving economic growth.

According to the Foreign Investment Restriction Index of the Organization for Economic Cooperation and Development, a few decades ago, China’s restrictions were much stricter than other major economies. Today, China has opened up foreign investment in manufacturing to a level comparable to that of other advanced economies. But for KTI services, China still has much more restrictions.

China is concerned that its service providers lack competitiveness in the global open market, and national security may be threatened. But Chinese companies have matured and will benefit from strong foreign competition, while security is manageable.

Compared with the manufacturing industry, where the government usually relies on subsidies and tariffs, combating protectionism in the service industry is more challenging. Open services need to reformulate complex regulations and establish globally compatible standards.It’s difficult to negotiate across borders, especially if there is Data ownership And safety.

If a widely accepted framework is to be developed, both the United States and China need to participate in the development of global guidelines. For China, greater competition with the United States will accelerate knowledge transfer and help Chinese companies upgrade their skills.

For American high-tech companies, the Chinese market generates a lot of profits and needs to invest in research and development to maintain their innovative advantages. Economic competition has put pressure on both sides to increase productivity.

The first phase agreement with China may be good politics, but the logic is questionable. If the United States and China want to solve problems that affect future prosperity, strengthening cooperation in high-value services provides another way.

Yukon Huang Senior Researcher, Carnegie Foundation for International Peace

Jacob Feldgoise is a junior researcher at the Carnegie Foundation for International Peace

This article originally appeared in South China Morning Post (SCMP), The most authoritative voice report in China and Asia for more than a century.For more South China Morning Post stories, please visit South China Morning Post app Or visit the South China Morning Post Facebook with Twitter Page. Copyright © 2021 South China Morning Post Publishing Company Limited. all rights reserved.

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