For a few years now, we’ve been seeing nationalist slogans all over the world — Make it British, Make in India and Make America Great Again. Each purports to sustain and grow domestic manufacturing and industry for largely the same reasons.
Most jobs in manufacturing are held by non-college-educated middle-class workers, jobs which provide a basic sense of human dignity and financial security to millions. For each nation as a whole, every component made domestically is one less part to be imported.
Imports subject economies to rules imposed by other countries, such as tariffs and duties, and consume valuable foreign exchange. In some cases, it may make sense to promote an industry for national security reasons. No country would like to be at another’s mercy when the defence of the realm is at stake.
There are emotional reasons too. Skills in many small-scale industries — such as carpet weaving, the jewellery trade and leather — are often passed down from one generation to the next, and no government would wish to see an entire culture erode.
Under such considerations, the government of China’s ‘Made in China 2025’ (MIC 2025) programme appears to be rational. But a look under the hood reveals a huge, nationalistic policy which has, at its core, a vision to help China dominate global trade.
~ First : The huge amount committed by the government for this programme is $300 billion, a value so large it eclipses the GDP of many countries. And bear in mind that the amount does not include the innumerable hidden subsidies which China extends to its companies.
~ Second : This vision is in addition to where China stands in the world trade order — as a country which makes and sells more than any other on the planet! This is why it already enjoys a surplus with most of its trading partners.
~ Third : The scale and scope of the programme to assert dominance are of particular concern. According to Investopedia, China is already a leading player in numerous industries, including iron, steel, aluminium, textiles, cement, cellphones, personal computers, shoes, chemicals, toys, electronics, rail cars and ships.
MIC 2025 would extend this dominance to 10 new industries including next generation IT, robotics, artificial intelligence, aerospace, new energy vehicles, new materials, biomedicine and agricultural equipment. If China is successful, there won’t be a single advanced sector in the world in which the country isn’t a key player!
~ Fourth : Is the way China wishes to enact the programme — by using State power to help its industries — that is a cause for pause around the world. Industry groups in both Europe and the US have criticised MIC 2025 as defeating the very principles of global trade. Their criticism does hold merit.
Enacting state powers
China is the world’s best at extending low-interest loans, unavailable to companies in other countries. It absorbs domestic manufacturing output, forcing companies dependent on state enterprises to consume the product, thereby increasing economies of scale and lowering costs. It requires foreign countries which receive Chinese aid — such as the nations benefiting from its One Belt One Road initiative — to source its products from China, thereby helping open new markets for its companies.
It also subsidises companies which dump products in world markets at prices below cost so that the country can weaken — and eventually wipe out — international competition. It has manipulated the value of the yuan, its currency, to keep it artificially low so that exports are cheaper (when priced in US dollars). And it is fierce in requiring foreign companies to share intellectual property with Chinese companies as a price to enter China’s huge market.
Global trade was built on the principle of comparative advantage. Turkey has a skilled advantage of making the best rugs at lowest prices. Japan has an advantage of making the best cars at the lowest prices. So Turkey sells rugs to Japan, buying Japanese cars in return.
As nations and technologies mature, it is natural that some advantages expire. Countries which dominated film photography for nearly a hundred years — the US (Kodak), Germany (Agfa) and Japan (Fuji) — don’t any more because film-based photography has largely ceased to exist. It is natural that countries acquire new skills and competencies to gain new comparative advantages.
But China’s approach is unprecedented. There is clearly no country in the world which works so closely with its industries for the sole purpose to win, sell, consolidate and use this platform to sell even more. It is using every power that it has, including geo-political, economic and military, to not only assert dominance of its existing industries but also of future ones.
MIC 2025 is the world’s largest nationalist policy of looking inward first, at the expense of the outside world. And all the world can do, unfortunately, is stand around and watch.