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US-China trade war
OpinionComment
Yukon Huang
Jacob Feldgoise
Yukon HuangandJacob Feldgoise

Opinion | What both US and China get wrong on economic policy and trade negotiations

  • Both sides share the misleading perception that promoting manufacturing is key to job creation, innovation and security
  • Their leaders have not recognised that the path to more constructive reengagement on trade issues lies in knowledge-intensive services

Reading Time:4 minutes
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An employee works on a truck assembly line at a factory for Jianghuai Automobile Group Corp in Qingzhou, Shandong province on March 15. Photo: AFP
Yukon HuangandJacob Feldgoise
Most observers welcomed the recent virtual meeting between US President Joe Biden and Chinese President Xi Jinping, even as some politically sensitive issues remain unresolved. On the trade war, not much has changed under Biden.
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Biden’s Buy America initiatives, his commitment to “invest in middle class competitiveness”, and an updated trade strategy highlighting unfair trade practices that hurt US manufacturing firms reinforce the sentiments inherent in former US president Donald Trump’s phase one agreement.

Even as the US and China differ on many economic policies, both sides share the misleading perception that promoting manufacturing is key to job creation, innovation and security. Their respective leaders have not recognised that the path to more constructive reengagement on trade lies in knowledge-intensive services.

America’s obsession with manufacturing is driven by the politics associated with the decline in manufacturing jobs – a major concern among middle-class voters. But in China, the focus on manufacturing is driven by the leadership’s vision of China becoming a global technological power. Yet over the past year, Beijing has reined in many entrepreneurial firms.

These actions call into question China’s support for innovation. The premise is that an innovative economy depends more on “hard-tech” manufacturing, such as AI-enabled robotics and electric vehicles, than on “soft-tech” services such as e-commerce and video platforms.

Policymakers in both the US and China have neglected the lessons of economic history. In the aftermath of World War II, economic power was largely defined by the manufacturing prowess of the US and a recovering Europe led by Germany. As the West prospered, however, its economies gradually transitioned to knowledge-intensive services. China and many other emerging market economies are following a similar path.

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