China-US High-Tech Competition, Trade Conflict and Development Rights

ChenZiye(陈子烨)andLiBin(李滨

Abstract:

The power and interest of industrial manufacturers are determined by their status in the relations of production. At the international level, countries see their economic and political status rise only when they climb the ladder in the international division of labor. As the primary production forces, science and technology are the main drivers behind such change. As new technologies give rise to new industries and restructure the international division of labor, developed countries strive to enhance the protection of their intellectual property rights (IPR) and safeguard their monopoly over core technologies. For developed countries, technological prowess holds the key to their supremacy in the global supply chain and international relations. The 19th CPC National Congress makes clear the overarching goal in the new era is to rejuvenate the Chinese nation and turn China into a strong modern country. As an important material condition for achieving this goal, China must transition from being medium- and low-end links in the international division of labor to becoming high-end links. In this process, China will encounter backlash from developed countries that lead in the international division of labor. The recent China-US tussle over trade in high-tech goods is a case in point, and should be viewed through the lens of the relations of production and the international division of labor. The insights thus achieved will be of great significance to China’s future development.

Keywords:

陈子烨

李滨

international technology competition, international division of labor, ChinaUS trade war, China’s development rights

JEL Classification Codes: F50, F51, F52, F59

DOI: 10.19602/j.chinaeconomist.2020.09.06

A key issue in the recent China-US, and to some extent China-EU and China-Japan, trade disputes is competition in the high-tech sector. Soon after the launch of Made in China 2025 - a 10-year plan to update China’s manufacturing industry, Western media published a swathe of reports accusing China of forcing Western companies to transfer technology, “stealing” intellectual property rights (IPRs), subsidizing industries, and extending state support to homegrown innovations. Such acts, they argue, violate market rules and constitute “unfair” competition against Western companies. The West is worried about China’s technological ascent because China is likely to break through the technological monopoly of Western companies that underpins their vested interests in the global supply chain. For this reason, they press China to enhance IPR protection and block Chinese companies from accessing Western technology. They even threaten China with a trade war and obstruct China’s development of the high

tech sector and its forays into international markets.

The high-tech sector is at the forefront of international competition as it determines a country’s position in the global supply chain. According to Immanuel Wallerstein (2004), the international division of labor is the geographical distribution of production activities including core and peripheral production activities; the fundamental difference among core, peripheral and semi-peripheral states lies in the extent to which they “absorb labor value, employ machines, and generate profits,” as well as their ability to manufacture core products. A country’s position in the international division of labor is not fixed, but instead is dependent on technological development and gains from trade relative to other countries. “No product is a core or peripheral product by its nature; such an attribute lasts only for a certain period.” A country’s technological performance and ability to manufacture core products are key determinants of its position in the global supply chain. A country’s place in the global supply chain determines their political status and their share in the distribution of the world economy. Gowen (2010) argues that the international division of labor is a hierarchy or process of power. In today’s world, countries are more intricately enmeshed in the global production chain than ever before, but core production links and products remain, and so does the hierarchy. Countries that lead in the high-tech sector and manufacture core products occupy the high-end, profitable links in the global supply chain.

As it is capital-intensive, with a long payback period and high risk profiles, the high-tech sector requires special state support. The State assures the mobilization of public resources in support of corporate R& D securing firms’ access to the market and technological rents, as manifested in corresponding market and IPR systems. Like China, Western countries utilize state power to support homegrown tech firms. However compared to Western countries, China’s state-led model has immense possibilities for technological development. Gowen (2010) predicted that “a huge challenge in the 21st century will be China’s economic and political rise. China boasts unique potentials to tap into its phenomenal economies of scale and learning, upgrade production with state resources, and improve its status in the international division of labor.” From this perspective, China-US trade frictions and hightech bans imposed by the US and some other Western countries against China are inevitable.

1. High-Tech Sector’s Status in the International Division of Labor and the Role of the State

A nation’s status in international relations stems from its position in the international division of labor. According to Karl Marx and Frederik Engels, the “relations between nations depend on each nation’s productivity, position in the division of labor, and internal interactions” ( Marx and Engels, 1995). In the final analysis, a country’s international status is determined by its position in the international supply chain. In this sense, international relations mirror the international relations of production. Without acquiring leadership in the international division of labor, a country cannot fundamentally alter its position in the international distribution of wealth and power.

Technology is the key determinant of productivity. As the catchphrase goes, “science and technology are the primary productive forces.” The high-tech sector determines a country’s place in the hierarchy of the international division of labor, its share in the distribution of the world economy, and its realm of influence in international relations. Given its strategic importance, the high-tech sector receives a great deal of state support in all countries - such support is necessary to a sector that is capital-intensive, risky, and entails a long payback period. Take the semiconductor industry for instance; an advanced semiconductor factory would cost more than one billion US dollars in the mid-1990s. It normally takes two to four years to launch a new product, five to six years to generate sales, eight to nine years to break even, and ten years to turn a profit. Such huge upfront and follow-up investments, together with the long payback period and high risks, deter most private companies from entering the realm of the high-tech industry.