China wants to make machines and tools, too

Financial Times:

Ms Boland, like a lot of witnesses at the US Trade Representative’s hearings, mentioned Made in China 2025, the PRC’s ten-year plan to become dominant and self-sufficient all the way up the value chain, in industries such as electric cars, aerospace, bio-medicine and farming equipment. It’s a major complaint of the USTR’s 301 report (emphasis ours):

The Made in China 2025 Notice sets forth clear principles, tasks, and tools to implement this strategy, including government intervention and substantial government, financial and other support to the targeted Chinese industries. Domestic dominance and global competitiveness are to be achieved by upgrading the entire research, development, and production chain, with emphasis on localizing the output of components and finished products. Foreign technology acquisition through various means remains a prime focus under Made in China 2025 because China is still catching up in many of the areas prioritized for development, and as U.S. companies are front-runners in many of these areas. 

The plan includes improving what the PRC calls “basic techniques” for manufacturing — exactly what the companies of the Motor & Equipment Manufacturers Association make. That’s the next link up the value chain. China wants it. So here’s the problem for this and every White House:

  1. You can’t apply tariffs lower down the value chain in China without harming the next link up, domestically. US manufacturers need Chinese resins, and want Chinese markets.
  2. Meanwhile, China is aggressively targeting that next link up with its own subsidies at home.

In its new tariff schedule, the Commerce Department tried to square this circle by including tariffs on current imports as punishment, and tariffs on tools and machinery as a warning. The companies of MEMA want neither, but they do want the US to be a lot more effective at bilateral negotiations with Beijing, because they look down the value chain and see Chinese companies — and Chinese subsidies — looking back up.

Tariffs alone aren’t the answer. Maybe tariffs aren’t the answer, period. But the 1.6m US employees of the machinery and fabricated metal products sectors can’t afford for there to be no plan whatsoever. Maybe the White House is playing its hand poorly. Maybe it has a bad hand. But the poker game is on.