The Sino American Trade War: Forced Technology Transfers

For the past few weeks, it seemed like America and China will finally be able to resolve their trade disputes. This is because Donald Trump and Xi Jinping were participating in a conference where a trade deal was supposed to be worked out. The markets were looking forward to some positive news. This was evidenced by the minor rise in the value of shares listed on the American stock exchange.

However, now the markets are once again worried. Instead of reaching an agreement, the problem between China and America seems to have gotten worse. Donald Trump has now threatened a flat 25% tariff on all Chinese products imported to America if China does not take meaningful decisions to protect American interests. The problem is that the battle between the two economic giants is likely to plunge the entire world into economic uncertainty.

This makes one wonder what America really wants. What would it take for America and China to reconcile their differences? Well, there are a lot of issues that America and China cannot seem to agree upon. However, the central issue in all their debates is that of forced technology transfers.

In this article, we will have a closer look at the issue of forced transfers. We will analyse the points of view which are often laid down by both America as well as China.

American Allegations

America alleges that China wants to replace the technological hegemony of American companies. This would not be a bad thing if China actually created better companies and products which replaced American companies and products. However, according to the United States, China is resorting to unfair competition. China is aware of the fact that it has a huge consumer market. Hence, it is using the allure of consumer markets as leverage in order to simply force American companies to give away their technology.

Weak IP Policies

China is a global hub when it comes to technological imitation. There are many small and medium Chinese companies which exist for the sole purpose of imitating American technology. Many of these companies openly infringe on the property rights, which are owned by American companies. In other countries, intellectual property infringement is considered to be a very serious issue and is dealt with immediately. However, according to America, China deliberately does not enforce intellectual property rights, thus allowing its companies to obtain an unfair competitive edge over their American peers.

Forced Technological Transfers

America also criticizes the Chinese state policy, which mandates technological transfer. According to this Chinese policy, foreign companies must tie up with local companies which they do not control, if they want to operate in China. As such American companies from all sectors such as automobiles, energy, and technology are forced to give away their trade secrets to Chinese companies.

China’s Allegations

China has been dismissing American allegations as baseless. According to the Chinese government, the playing field is level, which is the reason why so many American companies continue to operate in China. Even now, the protests are being done by the American government and not the American companies. American companies are still pretty happy with the trading environment, which is provided by China.

Is the Transfer Really Forced?

China refutes American allegations by saying that technological transfers are not forced but voluntary. The Chinese government has not created any law which makes it necessary for American companies to invest in China. However, if they do decide to invest and take advantage of the vast consumer market, China believes that it has the right to set some ground rules too.

The exchange of technology between foreign and local companies is therefore voluntary, and American companies are happy to pay it as a ticket price to enter the Chinese markets. There is no proverbial gun which is held to the head of American companies as they are forced to transfer technology to China.

The Logic behind These Technology Transfers

China believes that these technology transfers are absolutely necessary to enable it to develop into a developed country. China believes that it has already seen many countries which were forced to bow down to American hegemony.

America uses third world countries as providers of input. Some countries provide cheap material, whereas others provide cheap labour. However, once the final product is produced, these same countries are forced to import it at high prices. Hence, developing countries import lower order products and import higher order ones. This creates a huge trade deficit over time. This deficit can only be fulfilled by borrowing money from the American government! This is because the money has to be paid back in dollars.

Hence, China believes that it wants to export higher order technological products so that this vicious cycle can be broken and China’s descent into crushing debt can be stopped. This is the reason why they want to be equal technological partners rather than body shops which provide cheap labour.

The fact of the matter is that both America and China continue to hold very divergent views on this subject. It is unlikely that either of this superpowers will bow down. Hence, it seems like a trade war in on the cards!