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Trade war

Five things to know about 'Made in China 2025'

China's plan for technological dominance is a trigger for trade standoff with US

© Illustration by Michael Tsang

TOKYO -- The likelihood of a trade war between the U.S. and China intensified Wednesday, as both sides imposed tariffs on imports from each others' strategic sectors. For the administration of U.S. President Donald Trump, the purpose of triggering the punitive measures is not only aimed at reducing the trade deficit, but also turning off Beijing's plan to dominate high-tech industries under its "Made in China 2025" blueprint. Here are five issues around Beijing's ambitious program for technological dominance that is behind the current trade standoff.

What is "Made in China 2025?"

It is an industrial policy blueprint Beijing approved in 2015 that lays out the country's plan to upgrade China's manufacturing base in 10 strategic sectors, such as robotics, semiconductors, aviation and new energy vehicles. The key goal is self-sufficiency. It has set specific targets, such as 70% self-sufficiency for core components and basic materials in industries like aerospace equipment and telecommunication equipment manufacturing.

A key aim is technological independence, thereby reducing room for U.S. interference, and making China less vulnerable to economic sanctions, explained Jianmin Jin, an economist at Fujitsu Research Institute.

"Chinese policymakers have diligently studied the German concept of 'Industry 4.0' which shows how advanced technologies like wireless sensors and robotics, when combined with the internet, can yield significant gains in productivity, efficiency and precision," said Lorand Laskai, research associate at the Council on Foreign Relations in New York.

What is the U.S. concerned about?

The extent of U.S. concern is evident in a report released by the Office of the U.S. Trade Representative on March 22. Although the report was aimed at revealing in detail China's unfair trade practices, it singled out one Chinese government initiative as a prime example of Beijing's egregious behavior: Made in China 2025, said Laskai. "Made in China 2025" is mentioned more than 100 times in this nearly 200-page report.

What China is trying to do, many experts said, is to take over as leader in industries such as robotics that are seen to drive economic growth in the 21st century. "These are things that if China dominates the world, it's bad for America," U.S. Trade Representative Robert Lighthizer told a Senate Committee on Finance late last month. In order to secure this position, Washington alleges, China is engaging in unfair practices such as forced technology transfer. 

Will the Trump tariffs slow down China's technological advance?

Unlikely. With labor costs rising, China is determined to stay competitive by climbing up the value chain, from labor-intensive manufacturing to one led by advanced technologies. China also thinks that a shift to more sophisticated industries is essential to support its economic growth, explained Fujitsu Research's Jin.

How will the tariffs affect the U.S. trade deficit and what will China's response be?

The U.S. ran a record deficit of $375 billion with China in 2017. Trump has said he wants to reduce this by $100 billion. Fujitsu Research's Jin believes that the tariffs, if imposed, would help reduce the deficit. But the Trump administration seems to be more concerned about China's technological advance in the near future than today's trade imbalance between the two countries. 

China immediately condemned the U.S. action, arguing in a statement released through its embassy in Washington that the U.S. stance has no merit. It described the U.S. measures as "typical of unilateralism and trade protectionism." China has vowed to take "proportionate measures of the same intensity and scale on U.S. products."

On Wednesday, the China's commerce ministry announced a plan to impose tariffs on $50 billion of U.S. products, including soybeans. The move follows the introduction on April 1 of 15% to 25% tariffs on American goods worth $3 billion, in retaliation against U.S. tariffs on steel and aluminum imports last month.

"Those who attempt to make China surrender through pressure or intimidation have never succeeded before, and will not succeed now," Foreign Ministry spokesperson Geng Shuang told a daily press briefing Wednesday, according to state news agency Xinhua.

Will the $50 billion sanctions really be enforced?

Many economists, including Minoru Kaneko, analyst at Daiwa Institute of Research and former Japanese trade official, believe that China will try to negotiate with the U.S. to avoid a full-fledged trade war. U.S. Treasury Secretary Steven Mnuchin is reportedly considering a trip to China to hold discussions with Liu He, an economics adviser to Chinese President Xi Jinping.

Investors are also looking to the Boao Forum for Asia to be held on the southern Chinese island of Hainan April 8 to April 11. Xi is expected to make a speech there and hopes are that he will address some of the U.S. concerns, such as market access and trade imbalances. However, few expect Beijing to drastically change its roadmap to modernize its strategic industries given its ambition to become a superpower and sole rival of the U.S. 

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