BERKELEY, Calif. (Project Syndicate[1]) — With its ambitious Made in China 2025 strategy, China has made clear its objective to secure global economic leadership in advanced technology industries. This places it in direct competition with the United States — which currently leads in those industries — in what is emerging as an undeclared but intensifying cold war over technologies with both commercial and military applications.
With its investments in such dual-use technologies, China is seeking more than to compete commercially with the U.S.; it is also seeking greater military and geopolitical power. And it has deployed a variety of methods — including weak intellectual property (IP) protections, technology transfers as a condition for joint ventures with Chinese partners, evasion of export controls, and regulatory harassment — to acquire such technologies from the U.S. and other trading partners.
China’s intentions and practices have long been an irritant in Sino-American relations. The so-called Section 301 trade investigation launched by President Donald Trump’s administration last year[2] charged that China’s trade and industrial policies, which provide advantages to specific technology industries, violate both U.S. and international trade law.
The Section 301 report recommends curbing this behavior by imposing 25% tariffs on a number of Chinese exports — worth a total value of about $50 billion — that allegedly benefit from these policies. The Trump administration has just followed through on this recommendation, unleashing another round of tariffs on China — and prompting immediate retaliation.
Trump has cited national security concerns in order to justify his tariffs — including the hefty tariffs on steel and aluminum (automotive imports may be next) that he has imposed. But applying this rationale to America’s closest allies turns the national-security claim into a mere fig leaf for traditional protectionism for commercial objectives.
When it comes to technology and trade with China, there are legitimate national security concerns, which are all the more salient because technologies developed by U.S. businesses for commercial purposes increasingly match the sophistication of those developed by the military [3]in key areas like virtual reality, facial recognition, and drones.
Yet tariffs are not the answer. In fact, even tariffs targeting only Chinese products that benefit from the government’s mercantilist practices are counterproductive, because they effectively tax the U.S. companies they are supposed to defend. The reason lies in today’s complex global supply chains.
Many of China’s exports targeted by the Trump administration’s tariffs are produced by “foreign-funded enterprises,” in China, and U.S. and other non-Chinese companies are major investors. Moreover, such products — including 86% of U.S. imports from China [4]in computer and electronic products, 63% in electronic equipment and components, and 59% in nonelectrical machinery — usually embody high-value inputs or equipment produced by foreign (often U.S.) companies outside China.
This means that the value added to technology goods [5]“produced” in China is considerably less than the value of...