Catch-up is how economists explain the success of China and other fast-growing developing economies. Not having to invent the wheel, the microchip or the theory of continuous improvement is a distinct advantage over having to invent them.
This is not a small part of the Huawei story. Its rise in 32 years to be the world’s largest telecom-equipment manufacturer and the second largest maker of smartphones is a story of catch-up—of learning from the West, but also stealing from the West. Or to put it more politely, Huawei has taken advantage of the fact that Beijing is not interested in enforcing the intellectual-property rights of foreigners under Chinese law.
An early Huawei router design was shown to have been filched from Cisco, right down to copying the typos in the instruction manual. This week a U.S. criminal indictment piggybacking on a successful private lawsuit by T-Mobile shows persuasively that Huawei stole the design of a robot, known as Tappy, for testing the durability of cell phones.
Nobody in his right mind thinks these episodes are exceptions. Nobody even needed these episodes to suspect that Huawei’s spectacular success has not been the product entirely of its own ingenuity and hard work (though these have been considerable). U.S. and other Western companies also vigorously “learn” from each other right up to the limit prescribed by our patent laws. In China, there is no limit. Stealing is regarded as a national development strategy and patriotic duty. The U.S. indictment alleges that Huawei even offered bonuses to employees who successfully purloined a competitor’s trade secrets.
This might seem clever, but it points to a problem for China’s own development—and not only because it antagonizes trade partners. China wants higher-order technology and investment from the West. It won’t come if trade secrets aren’t honored and enforced. China’s own firms cannot develop to their potential, at home or globally, if their own intellectual property isn’t secure even as they are distrusted abroad as agents of Chinese spying.
In his first week he withdrew from the unratified 12-nation Trans-Pacific Partnership. He prepared to pull out of the U.S.-Korea Free Trade Agreement (Korus) and the North American Free Trade Agreement. Earlier this year he imposed steep tariffs on imports of steel and aluminum, using a little-used national security law, and threatened the same for autos.
Today, Korus and Nafta have been replaced by updated agreements(one not yet ratified) that look much like the originals. South Korea accepted quotas on steel. Mexico and Canada agreed to higher wages, North American content requirements and quotas for autos.
These represent a step back from free trade toward managed trade, but they will have little practical effect: The limits on how many cars Mexico and Canada can ship duty-free to the U.S., for example, exceed current shipments. Mr. Trump hasn’t stopped threatening auto tariffs, but for now his officials have elected instead to seek broader tariff reductions with Japan and the European Union.
.. Meanwhile, the U.S. trade deficit that incenses Mr. Trump has grown during his presidency, especially with China and Mexico, as a strong American economy sucks in imports. His exhortations to manufacturers to bring jobs back to the U.S. have largely fallen on deaf ears.
maybe intending it as a compliment—craftily packaged together a number of small concessions and previously agreed upon initiatives which allowed Trump and his allies to hail the agreement as an American win. “This is a real vindication of the President’s trade policy,” Wilbur Ross, the Secretary of Commerce, told reporters as he travelled to the Midwest with Trump on Thursday.
In reality, the Europeans gave up little except their prior refusal to negotiate under threat.
.. Juncker’s pledge that the E.U. would import more U.S.-grown soybeans, for instance, formalized something that was likely to happen anyway. After Trump imposed hefty tariffs on Chinese steel and aluminum products, earlier this year, China responded by imposing equally hefty levies on U.S. agricultural exports, including soybeans. That made American soybeans prohibitively expensive for Chinese buyers
.. Brazil, traditionally the E.U.’s largest supplier, is now shipping more of its produce to China, encouraging the Europeans to shop elsewhere. “While China concentrates its purchases on Brazil, the rest of the world turns to the U.S.,
.. Looking years ahead, Norway’s reserves have plateaued, and the Europeans will eventually need alternative suppliers. U.S. producers could well be among them. But, again, such a result may well have occurred without Wednesday’s agreement.
.. hopefully nobody tells Trump that these concessions were largely illusory.
.. Both sides provide subsidies or tax breaks to politically powerful groups, such as farmers, and to industries they deem strategically important, such as commercial-aircraft manufacturers in the E.U. and military contractors in the U.S. These policies proved sticking points when the Obama Administration and the E.U. engaged in unsuccessful negotiations about a transatlantic free-trade treaty, and they will almost certainly prove to be sticking points again.
.. One way to think of the outcome of Wednesday’s meeting is that Trump is happy to declare a victory whenever he can get away with it. However, a more optimistic reading of this week’s developments is that Trump has finally realized that he needs the E.U.’s support in his campaign against China’s much more overtly mercantilist trade practices, and that, in this area at least, the United States and Europe have common interests.
.. E.U. officials wanted to persuade the Trump Administration to pursue grievances against China through the World Trade Organization (W.T.O.), the global ruling body for trade disputes, rather than by dishing out tariffs unilaterally. The article also noted that Robert Lighthizer, the U.S. Trade Representative, a key player in the Trump orbit, is not necessarily averse to this idea.
.. “Comfortingly, there is mounting evidence that Mr Lighthizer is not out to torpedo the WTO,”
.. If Lighthizer could persuade Trump to go down this route, and his negotiating team could construct a common front with the E.U., there is a possibility that, sometime in the future, China might be persuaded to make some real concessions in areas like opening its markets and respecting intellectual-property rights. If that did occur, the Trump Administration could claim a genuine victory.
As a Chinese official once explained to me, the strategy is to open the window but place a screen on it. They get the fresh air (foreign investment and technology) while keeping out the harmful elements (volatile capital flows and disruptive imports).
In fact, China’s practices are not much different from what all advanced countries have done historically when they were catching up with others.
.. One of the main US complaints against China is that the Chinese systematically violate intellectual property rights in order to steal technological secrets. But in the nineteenth century, the US was in the same position in relation to the technological leader of the time, Britain, as China is today vis-à-vis the US. And the US had as much regard for British industrialists’ trade secrets as China has today for American intellectual property rights.
.. The fledgling textile mills of New England were desperate for technology and did their best to steal British designs and smuggle in skilled British craftsmen. The US did have patent laws, but they protected only US citizens. As one historian of US business has put it, the Americans “were pirates, too.”
.. Any sensible international trade regime must start from the recognition that it is neither feasible nor desirable to restrict the policy space countries have to design their own economic and social models. Levels of development, values, and historical trajectories differ too much for countries to be shoehorned into a specific model of capitalism.
.. Governments that worry about the transfer of critical technological know-how to foreigners are, in turn, free to enact rules prohibiting their firms from investing abroad or restricting foreign takeovers at home.
.. Many liberal commentators in the US think Trump is right to go after China. Their objection is to his aggressive, unilateralist methods. Yet the fact is that Trump’s trade agenda is driven by a narrow mercantilism that privileges the interests of US corporations over other stakeholders. It shows little interest in policies that would improve global trade for all. Such policies should start from the trade regime’s Golden Rule: do not impose on other countries constraints that you would not accept if faced with their circumstances.