The escalating trade war between China and the United States is hurting both the countries, posing threat to global slowdown. Is it about just steel and soybean? Why should a great economy like the USA bother too much about such trifling issues? Or, is it about technology transfer posing threat to trade supremacy? In a recent opinion article, Wharton dean Geoffrey Garrett stated, "recent trade skirmishes between China and the United States are less about steel and soybeans and more about which country will be the leader in global innovation in the 21st century." It's less steel, soybeans and solar panels, but more about electric vehicles, self-driving cars, and artificial intelligence. China appears to be a very real challenge to American and its ally's global dominance in the innovation economy.
WHAT ARE THE FACTS TO BE CONCERNED ABOUT: Some facts-- such as China has laid down more high-speed rail lines than the rest of the world combined, mobile payments in China are 50 times as large as in the US, more electric vehicles were sold in China than in the rest of the world, and more than twice as many industrial robots were in use in China than in the US are ringing the bell. Unlike many other countries, China did not just buy them from foreign suppliers. Rather, through the process of acquisition, China has absorbed the underlying science and technology and attained the capability of improving them further to re-innovate better version.
IS IT ABOUT IMPORT SUBSTITUTION STRATEGY OF CHINA: Many countries of the world have been practising such a strategy. Just after independence, India pursued a massive import substitution strategy. India went to produce basically everything from shaving blades to cars and trains. Russia went further with it. Russia pursued state control across the whole value chain starting from the scientific discovery to technology invention to product innovation. After pursuing such strategy, neither India nor Russia among major countries grew as a significant competitor to America's dominance in innovation. Rather upon failing to progress with the import substitution strategy, they started opening the trade doors for western industrial products to flow.
WHY DIDN'T RUSSIA AND INDIA POSE THREAT TO US INNOVATION: Russia pursued the linear model of innovation, starting from scientific discovery to technology development, leading to innovation. And Russia pursued it under state control. Despite some successes like nuclear power plants, Russia's success in commercial innovation was very limited. Due to the lack of competition, the speed of innovation was quite low. As a result, by the later part of the 20th century, most of the industrial products in Russia were quite primitive, in comparison to the West. As a result, the gap in quality of life in Russia and the west was widening which eventually led to the opening of the closed state-controlled economy to international trade. On the other hand, India's import substitution strategy was focusing on the replication of western Industrial products. To take the replication capacity to the next level of innovation, India did not make a substantial investment in R&D. As a result, India's replication capability was failing to offer increasingly better quality products at lower cost. As a result, the replication based industrial economy of India virtually got stagnant, forcing India to open its economy to global trade.
WHAT IS NEW IN CHINA: Unlike Russia and India, China's situation is unique. On one hand, China has been pursuing the market economy. On the other hand, China has been making a massive investment in research and development (R&D). Growing at a rate of 18 per cent annually over a decade, China is the second-largest spender on R&D after the US, accounting for 21 per cent of the world's total of nearly $2.0 trillion in 2015. Unlike Russia, China has not been pursuing a linear model of innovation. Rather China's massive R&D focus is on absorbing state of the art foreign technologies and improving them further. As a result, China's patent filing has reached an astronomical level, over 1.0 million annually. Even China has been showing a strong presence in US Patent and Trademark Office (USPTO). For example, US patents to inventors from developing countries have risen from under 1.0 per cent in 2000 to 6.0 per cent in 2016, with China (4.0 per cent) and India (1.0 per cent). Upon absorption of foreign technologies, China has been moving to claim the ownership of underlying technologies, often through patents obtained from the local office. They are also making progress in improving them further, with the intellectual properties disclosed in the US patents. Such unique strategy of China in acquiring existing technologies and leading the next wave of innovation has become a real threat to the USA.
COMPLEMENTARY ASSETS MAKE CHINA'S PATENTS POWERFUL TRADE WEAPONS: China's growing patent portfolio, taking the 3rd largest position in volume, alone is not a big concern, as patent itself cannot change competitiveness. The concern is about the complementary assets, which China has acquired over the last 30 years. Made in China is now well accepted across the world. China has developed a world-class infrastructure to host factories of global brands. Not only Foxconn's mega factory for assembling, many components of the iconic innovations like iPhone are now manufactured in China. Moreover, Chinese companies have developed trade relations all across the world to take their products virtually to every corner of the world. Such complementary assets in one hand will be offering scale and scope advantage, on the other hand, it will be facilitating the diffusion of Chinese innovations across the globe.
CHINA'S GROWTH FROM IMPORT TO ABSORPTION TO INNOVATION: In 2005, Siemens AG and China CNR Corp. Ltd. (CNR) jointly got the contract to construct 60 passenger trains for the high-speed railway that links Beijing and Tianjin. Among them, the first three trains were constructed in Siemens' German plant, while the remaining 57 were made in China at CNR's Tangshan Locomotive and Rolling Stock Works in Hebei. Due to this partnership, Siemens total China sales reached $8.3 billion in fiscal 2008. But in 2009, finding its role as component supplier to CNR, supposed to be a partner, disappointed Siemens. This example indicates that China has been using the domestic market as the base to acquire the technology, eventually finding ways to reduce the role of foreign firms.
Technology transfer agenda is being promoted to close the gap between rich and poor countries. It's well accepted that technology has been the core strength for high income in advanced countries. The basic proposition is that the technology base should be transferred to less developed ones to uplift them closer to the level of advanced countries. Due to its high-perceived importance, technology transfer is one of the key components of international collaboration and commitment. Such collaboration sometimes gives the impression that technology recipient countries will always remain dependent on technology donors, let alone growing as a rival. But China's technology transfer agenda is creating the possibility that it may emerge as a strong force in the innovation economy of the 21st century-triggering contentious trade issues.
M Rokonuzzaman, Ph.D is academic, researcher and activist on Technology, Innovation and Policy. zaman.rokon.bd@gmail.com