風蕭蕭_Frank
以文會友
中美經濟競爭與全球供應鏈回流
努魯拉·古爾、塞裏夫·迪萊克
《中國國際政治學報》，第 16 卷，第 1 期，2023 年春季，第 61-83 頁，https://doi.org/10.1093/cjip/poac022
自2008年全球金融危機以來，美國改變了經濟重點和政策偏好，共同努力增強其在全球經濟中的影響力，減少對全球供應鏈的過度依賴，並在境內創造更多就業機會 。 在特朗普就任總統和 COVID-19 大流行之後，這種變化變得更加明顯。 通過回流重振製造業現在是美國政客的主要目標。 本文分析了美國在與中國技術競爭加劇的情況下實施的將工廠從中華人民共和國撤回以振興美國製造業的兩項戰略。 它們是新保護主義和智能自動化。 我們認為新保護主義政策和智能自動化技術是相互關聯的因素，被戰略性地用來將在中國的美國跨國公司帶回美國，我們研究這兩種策略（中美科技戰的每一個要素）是否可以 支持美國製造業回流和振興。 我們發現，僅靠新保護主義措施的增加和智能自動化技術的擴散，不足以讓美國充分鞏固其對中國的技術優勢，增加其製造業投資的動力，並通過以下方式為美國社會更廣泛的階層創造高薪就業機會： 製造業活動回流。 為了實現這些目標，美國應該實施一個涵蓋產業政策、技術政策、稅收政策和勞動力市場政策的綜合政策框架。 否則，即使回流可能獲得一定動力，新的工業設施也無法充分提高生產率，從而將美國經濟的競爭力提高到令人滿意的水平，而且此類投資也可能無法提供足夠的新就業機會來解決社會經濟問題。
Introduction
Every major economic crisis has changed the course of politics and economic policies. The Global Financial Crisis (GFC) was no exception, having caused the global economy to crash and unemployment to skyrocket—effects that individuals in developed countries, especially the USA, felt most severely. The USA had experienced certain structural problems long before the crisis, however. Productivity was sluggish, and labour market polarisation had worsened since the mid-1970s—problems that the destructive effects of the GFC both deepened and accentuated.
Furthermore, the USA’s diminishing share in the global economy over the past few decades contrasted dismally with China’s astonishing and sustained growth performance, which now poses a growing threat to the USA. To bolster its weight in the global economy, reduce over-reliance on global supply chains, and create more employment and prosperity within its borders, therefore, the USA has changed its economic priorities and policy preferences. Revitalising the manufacturing industry through reshoring has become a top economic goal for US politicians. Manufacturing also gained more attention in recent years. The COVID-19 pandemic laid bare the fragility of global supply chains and consequent high risks associated with concentrating manufacturing capacity in China; also the need to counter climate change through renewable energy technologies and sources, including electric vehicle and battery production. Instead of focusing on soft business activities, such as research and development (R&D), design, marketing, and finance, the USA now aims to bring factories that were offshored to countries paying low wages, especially China, during the boom decades (the 1980s, 1990s, and early 2000s) of globalisation and neoliberalism back to the USA. In doing so, the USA aims to preserve its relative technological and economic superiority over China by stimulating production, productivity, and innovation, thus also creating more jobs that pay decent wages. Industrial policies and protectionist measures, largely forgotten for more than three decades, were consequently resurrected after the GFC. On the pretext of security concerns and technology theft, the USA has hence brought into effect neo-protectionist measures, prevented foreign states from acquiring domestic companies, and provided incentives to strategic manufacturing industries.1
The political discourse has also changed dramatically. The USA has gradually undermined the international economic and political structure that it originally shaped. Restoring American manufacturing and jobs was among Donald Trump’s most pompous election promises in the effort to “make America great again.” He consequently, and purposefully, opened fire on the rule-based free trade regime. In his remarks during the 73rd Session of the United Nations General Assembly, Trump stressed that the USA “reject[s] globalism and embrace[s] the doctrine of patriotism.” Unsurprisingly, these sentiments triggered a stringent trade/technology war against China.2 But an important point must be underlined here. Neo-protectionist measures are not unique to the Trump era; his predecessor, Obama, used protectionist policies, including tariffs, and provided certain incentives geared to assuring the competitiveness of American firms. Joe Biden has also embraced a production and investment strategy, evident in the motto “Made in All of America,” aimed at bolstering the strength of the US economy and keeping prosperity within US borders. Biden’s reluctance, so far, to roll back the tariffs that his predecessor imposed on Chinese goods implies that neo-protectionism is by no means excluded from his game plan.
In addition to such changes in the policy environment, the global economy has also experienced a technological transformation, evident in the mode of automation. A range of new technologies—such as artificial intelligence (AI), robotics, three-dimensional (3D) printers, and the Internet of things (IoT), among others—has fundamentally altered, over the past few years, the way in which business and production are carried out.3 Unlike previous technological transformations, however, this one threatens not just the unskilled labour force but also skilled workers whose jobs entail routine, repetitive, and independent tasks.4 Certain advanced economies, including the USA, have tried to make these technologies an industrial policy priority strategy, in order to regain the competitive manufacturing advantage they lost to developing countries, by reducing the weight of labour in production. From this perspective, this strategy connects closely to neo-protectionism. Similar to neo-protectionist tools, smart automation technologies can also be used to support domestic production and industries by convincing US multinational companies (MNCs) to reshore their manufacturing facilities. In this article, smart automation technologies are not considered as an exogenous factor, whereby they are the sole preserve of scientists and innovative entrepreneurs within the international political economic environment, but rather as part of an industrial strategy used by certain developed countries against developing ones to protect the former’s competitiveness and national interests. There is evidence to suggest that this new type of automation process might constitute a threat to developing countries like China and Mexico, with whom the USA has some problems in regard to trade balance and technology transfer.5
This article aims to analyse the two strategies that the USA implemented to reshore factories from China and revitalise American manufacturing in light of its growing technology competition with China. They are neo-protectionism and smart automation. While neo-protectionism might help the USA to bring some factories, and hence employment, back from China, a strategy based solely on such policies will nevertheless have a limited positive impact on US industry and may even cause serious side effects, such as inflation. Neither does the loss of the USA’s competitive manufacturing edge and its growing trade deficit bear any close relation to the so-called unfair trade practices emanating from China, or technology theft. Economic realities, such as a pervasive decline in productive R&D investments, over-financialisation, high market concentration, and corrupt tax systems, are the main culprits of the decline in US business dynamism and rise in its blue-collar unemployment and inequality. Moreover, neo-protectionist measures may not be sufficient to deter the inexorable closing of the technological gap between the USA and China. This article also argues that a smart automation strategy may indeed offer the USA some advantages, but that unless economic policies to guide R&D investments and technology are put in place, as well as compensation mechanisms for those in the US labour market that lose out, inequality will worsen. If the aim of the USA is to consolidate its technological superiority over China and, through the reshoring of manufacturing activities, create well-paying jobs for the broader segments of American society, it must implement an integrated policy framework that spans industrial policies to technology policies and tax policies to labour market policies. Otherwise, the promotion of reshoring may be less generous than expected, and reshoring, due to its side effects, may not generate as positive a contribution as hoped.
Theoretical Background
During the neoliberal era, the USA pursued a strategy of engagement against China. Centred around gradual liberalisation of the Chinese economy and its integration into global supply chains through foreign direct investments (FDIs), its aim was a stable and peaceful balance with China. As a part of this engagement strategy, many US politicians welcomed or at least raised no objections to the decisions of US MNCs to move their factories to China. Accession to the World Trade Organization (WTO) and the country’s attraction of numerous MNCs greatly enhanced China’s economy. Economic conditions in the USA over the same period did not deteriorate in nominal terms. On the contrary, between 1980 and 2008, the so-called Golden Age of neoliberalism and globalisation, the USA’s economic power in terms of US GDP increased, evident in its numbers of patents and many other indicators. This raises the question: if the USA actually increased its absolute power in recent years, why is it trying to modify the global economic order by redesigning the rule-based international free trade and international production network?
Since the GFC, the USA has gradually changed its attitude towards China. US politicians have demanded that American MNCs reconsider their investments in China in favour of reshoring their operations. When evaluating this attitude in the purely liberal economic sense, changing this equilibrium may not seem a rational move on the USA’s part. Understanding of the USA’s desire to reshore entails examining the issue through the lens of political economy. In this context, such power and distribution struggles need to be analysed on two different layers. First, one should consider how manufacturing and technology have shaped the balance of power between the USA and China. Second, the socioeconomic and political reflections of this change in supply chains and the effect on the USA of the two countries’ technological rivalry are vital topics that merit attention.
From a realist perspective, countries try to maximise their relative power. Although a country’s action may prevent it from achieving large gains, as long as it puts rivals at an even greater disadvantage, that action will pay off.6 Survival can be regarded as a prerequisite for achieving all goals.7 Therefore, if a particular issue is seen as a matter of survival (such as security), economic gains may be compromised for a certain period, thus, to weaken rivals, slow their development process, and bolster that country’s relative power. This is what the USA is currently doing. Even though protectionist moves hurt the US economy8 and reshoring is a difficult task, the USA nevertheless aims to slow China down by bringing factories back to the USA through neo-protectionist policies and smart automation technologies.9 In this context, the USA might suffer high economic costs, such as rising prices and production inefficiencies, at least for a while. But US politicians will probably anticipate relatively greater harm to the Chinese economy by virtue of these policies than to the US economy.10
Japan, an ally that posed no military threat after World War II (WWII), is another instance. The USA’s economic stance towards Japan changed after that country’s promising high-tech industries outcompeted those of their American rivals. Relative power then made the most sense for US politicians when shaping trade and investment policies.11 Michael Mastanduno clearly points out: “if the concern is that economic interaction will endanger a country’s competitive position economically, we should expect officials to contemplate and adopt measures associated with strategic trade policy, such as the targeting or promotion of ‘strategic’ industries, or the disruption of efforts by other governments to lend their industries a competitive advantage.”12 When it comes to China, therefore, it is no surprise that the USA is even more aggressive because China is not just the USA’s economic rival, but, as a hegemon candidate, also a military threat.13
The fungibility of power is another issue to be addressed in this great power rivalry.14 Even though whether or not economic power is fungible in security affairs is debatable,15 China’s economic and technological progress could nevertheless pose major problems for US security interests, especially in the Asia-Pacific. China has been investing in high-tech and strategic industries, including telecommunications, AI, robotics, chips, and military. Although China emphasises its “peaceful rise” as political discourse, the country’s investment areas have prompted the USA to reconsider their implications for the US economy’s global position.
From a realist perspective, great powers always struggle in their own favour with the changing distribution of power. The revisionist intention of great powers, whereby acting aggressively is a way of remaining secure, is constant.16 In an anarchic international system, countries fear one another; security hence becomes the primary issue in all matters, and the strength of one competitor can galvanise the other. Realists predict that China’s economic progress will enkindle security competition between the USA and China, thus fuelling the risk of war. Power transition theory, meanwhile, opposes the “anarchic international system” approach of realism, arguing that a hierarchical relationship exists between countries, whereby the strongest power determines the status quo and assumes responsibility for protecting it. Under these circumstances, the international system built by the most powerful state continues to both reveal and shield the hegemon’s interest. However, the hegemon’s declining power endangers this balance.17 When the hegemon’s leadership is tested by the challenger with strategic capabilities, the probability of a war to bring about a power transition increases.18
Whether the power struggle between the USA and China will morph into a war is beyond the scope of this paper. However, it should be noted that China’s economic rise and the expansion of its capacity to convert its economic capabilities into strategic technologies might make the USA anxious about its current global position.
Guarding the liberal economic order has long been the main pillar of the US grand strategy. America had no hesitation in spending billions on the establishment of global security and economic stability. But as international conditions and national expectations change, even the USA might display unexpected reflexes and follow such suboptimal strategies as retrenchment and protectionism.19 Great powers may thus hope to gain time on their way to regaining power and reforming domestic issues.
From the 1980s to the early 2000s, the USA did not perceive China as a threat, thus implicitly supporting US MNCs' investments in China , especially as they caused inflation to fall and corporate profits to proliferate. Until the 2010s, prominent liberal scholars argued loudly that strategic economic engagement through international institutions and global supply chains was the most convenient option in regard to the USA’s strengthening of its relations with China.20 However, this picture has changed along with China’s accelerated technological progress. Intending to have a strong and modern manufacturing industry, China announced its Made in China (MIC) 2025 plan, which constitutes a challenge to the world’s current technological champions and advanced economies.21 China has succeeded in becoming one of the world’s leading export countries, both in the medium- and high-skill sectors.22 Keohane maintained that “Hegemonic powers must have control over raw materials, control over sources of capital, control over markets, and competitive advantages in the production of highly valued goods.”23 In this regard, China’s rapid move to produce its own brand of high-tech products has made the USA anxious, pushing US politicians to contemplate the prospect of China’s becoming a regional hegemon and thus foiling US strategies in both the Asia-Pacific and Europe.
Trade and investment flows and the technology war between the USA and China have had significant effects not only on the balance of power on a global scale but also on the internal dynamics of the US economy. The outflux of US factories to China, as well as the sharp widening of its trade deficit with the PRC, has stoked certain economic problems in the USA. Since the 1970s, the USA has mainly focused on the R&D, design, branding, and marketing aspects of global value chains (GVCs) and transferred production to low-wage countries. The USA is still good at manufacturing on a value-added-per-capita basis, and US firms continue to pioneer innovations. But neglected production weakens the entire manufacturing innovation ecosystem.24 Productivity through linkage and spillover effects is substantial in manufacturing,25 and breakthrough innovations that emerge in manufacturing gradually spread to other sectors.26 Moving other processes away from the production pillar, therefore, has adversely affected productivity in the USA.
Manufacturing strengthens the middle-income class by creating a more balanced labour market for white- and blue-collar workers.27 The manufacturing decline has hence also caused certain negative socioeconomic effects in the USA. These are evident in considerably depleted job opportunities for unskilled workers, stagnation of real middle-income class wages, and deterioration of income distribution.
After WWII, to prevent its citizens from leaning towards communist and socialist beliefs during the Cold War, the USA prioritised more inclusive and shared prosperity. To this end, US governments supported manufacturing, allocated generous resources to education, allowed trade unions to strengthen, and attempted to reduce inequality through social transfers. The benefits of this environment to ordinary US citizens were reflected in improved standards of living. 1973 was the year when a typical US worker’s real weekly wage (measured in 2013 dollars) peaked at $767.28
This significant increase in wages intimidated American manufacturers, pushing many of them to shift their production facilities to low-wage countries. The rapid decline in transportation and communication costs as a consequence of technological progress also incited MNCs to move their labour‐intensive production facilities. As a result, the mass transfer of blue-collar jobs to developing countries accelerated. China’s surge of manufacturing exports led to a significant decline in employment in the USA.29 The transfer of labour-intensive production, skill-biased technological change, and the decline of labour unions have also suppressed wages, thus reducing the share of labour income.30 The increase in labour productivity has consequently outstripped that of wages since the mid-1970s.31
MNCs, meanwhile, have increased their profits by reaping the benefits of falling costs and easy access to the global market. Rising profits has been a major driver of inequality over the past two decades, which explains why trade liberalisation could not deliver the promised inclusive growth.32 MNCs have used high profits to dominate domestic and global politics through lobbying, urging politicians to implement policies that are to their advantage. Despite all this, even before the GFC, many governments were unable to take measures to prevent MNCs from moving their production facilities because MNCs were among the main actors financing politics.
As, owing to the rise of globalisation and neoliberal policies, corporate and wealth tax rates have declined and capital has become more mobile than labour, inequality figures are now alarming. As Piketty has shown, the widening gap between rates of return on capital and the rate of economic growth has, since the 1970s, caused greater inequality in the USA.33 While the income shares of affected individuals (i.e., those who have lost their jobs and/or experienced stagnated real wages due to technological and trade shocks) have declined, MNC shareholders and employees have doubled both their income and wealth.34 The pre-tax income shares of the top 10% in the USA have risen from 33 to 50 percentage points. And while the pre-tax income of the bottom 50% dropped by 1% between 1978 and 2015, the income of the top 1% rose by 198% and of the top 10% by 115%.35
High inequality reduces both social trust36 and trust in political institutions,37 paving the way towards political polarisation. Individuals that are overwhelmed by economic shocks and pessimistic about inclusive policies are expected over time to gravitate to populist and authoritarian values. This polarisation effect thus promotes the electoral success of populist politics.38 One empirical study estimated that swing states would have elected Clinton instead of Trump if the growth of China’s import competition had been half that actually experienced.39 Slogans and ideas such as reshoring, formerly uttered mainly by populist politicians, have begun to shape the policies of central and liberal politicians as a reflection of the changing political atmosphere.
Navigating US–China Economic Rivalry
The US trade deficit with China widened after China’s accession to the WTO, having increased from $83 to $353 billion in the 2001–21 period.40 Some believe, and argue, that the growing trade deficit was what caused the dramatic change in the USA’s economic stance on China and led to its launch of a trade war. But the trade deficit is the tip of the iceberg. Such an interpretation might hence incorrectly draw the arrows of causality. The US–China trade deficit is not the fundamental, but proximate cause of the USA’s aim to reshore manufacturing activities. Put another way, reshoring is not solely a reflection of the trade deficit problem, but part of a more structural game plan the USA is pursuing to consolidate its technological superiority over China and create an inclusive economic prosperity.
The relative performance of American manufacturing has declined over the past few decades, while China’s has achieved a dramatic leap. China accounts for 28.7% of global manufacturing production, according to recent figures, so meriting its epithet “the world’s factory.”41 The key role of FDIs, especially those from the USA, is an undeniable factor behind this success. The total amount of FDIs to China from the USA skyrocketed after China’s WTO accession—from $11.14 billion in 2000 to $118.19 billion in 2021.42
In tandem with the Chinese economy’s transformation, FDI has mainly shifted towards high and advanced technology.43 Although inflows of US investment to China did not initially cause either US politicians or voters undue concern, the situation changed dramatically after the GFC, when economic and social problems mushroomed. China’s industrial transformation from labour-intensive production to technology-intensive manufacturing has also generated more stringent questioning of US factories fleeing to China and the weakening of the USA’s relative economic power compared with China’s.
However, by the time the Americans began such questioning in real terms, China had already significantly narrowed its gap with the USA on many economic and technological indicators, so reflecting a notable rise in China’s global production and competitiveness. The Competitive Industrial Performance (CIP) Index shows China has outstripped the USA as regards competitive production and export of manufactured goods (see Figure 1). The rise of Chinese companies in manufacturing and trade, meanwhile, has been manifested in R&D and innovation performance. Maintaining an upward R&D investment trend, China has rapidly narrowed its gap with the USA. China’s total R&D investment as a share of GDP in 1991 was only 0.73%—a ratio that by 2019 had risen to 2.24%. Parallel to this, China’s patent applications increased after the GFC, gaining the second place in the global rankings (see Figure 2). In enabling its production of more sophisticated products, this acceleration in technological progress and innovation dramatically changed the composition of China’s exports. The share of high-tech products in China’s total manufacturing exports rose from 30.15% in 2007 to 31.27% in 2020. The US high-tech export ratio, meanwhile, dropped from 29.87% to 19.48%.44
US–China CIP Index Score
Patent Applications per 100 billion GDP
Dozens of Chinese companies have expanded their weight in global markets to become key players in their particular industries and thus climb to the top of the global rankings. The number of Chinese companies in the Fortune 500 has soared. In 1995, only two companies from China appeared on the list, but [in 2021] China surpassed the USA in this regard with a total of 135 companies. China’s technological breakthroughs are most apparent in the Chinese companies that have achieved a competitive level in global markets in such high-tech sectors and products as telecommunications, renewable energy, semiconductors, and personal technology.
While the development trend of production, exports, and technology is clearly evident in China, that for the USA appears somewhat lacklustre. In recent years, the USA has been losing its competitiveness in the manufacturing sector and has lagged behind in innovation. Implementation of inadvisable and incomplete policies has led to a narrowing technology gap between the USA and China. Owing to neoliberal policies, moreover, federal resource funding of R&D has rapidly decreased. The percentage of federally funded R&D in GDP fell from 1.86% in 1964 to 0.66% in 2020.45 The decline of public support for R&D, moreover, resulted in the shift of technology and innovations towards applied sciences, which generally bring a sterile productivity effect, (processing?) rather than basic sciences, which enhace productivity relatively more. As the USA was unable to replicate the increase in productivity it achieved during the 30 years after WWII, when the public was highly supportive of education, more public resources were channelled to R&D. Consequently, while coordination and cooperation between the public–industry–university triad was at a high level between 1947 and 1973, when the average growth of productivity in the non-farm business sector was 2.8%, between 2007 and 2019 it was only 1.4%.46
On the whole, the USA has encountered slowing productivity and economic growth and has also seen a significant decline in manufacturing jobs. Total manufacturing employees have fallen from 19.5 million in 1979 to 12.8 million in 2022.47 In recent decades, the situation in the US labour market has been one catering to skilled individuals, in such areas as finance, design, and IT at one end, while at the other there are growing vacancies for low-paid, unstable service jobs. These developments have deteriorated income distribution by creating an enduring wage growth gap between low- and high-skill occupations.
Energising Reshoring through Neo-Protectionism and Smart Automation
The rapid recovery after the GFC of countries with a strong industrial base, such as Germany, South Korea, and China, and the supply chain disruptions caused by the COVID-19 pandemic show how critically important the manufacturing industry is to economic progress in the 21st century. This is reflected in the policy steps the USA has taken to revive its manufacturing. To reverse the de-industrialisation process and bring manufacturing operations back, the USA has followed the two strategies of neo-protectionism and smart automation.
As part of a so-called “neo-protectionist” strategy, subsidies, incentives, anti-dumping policies, non-tariff barriers, and even tariff hikes have been implemented to keep domestic firms and industries competitive and to protect national security. Contrary to popular belief, the neo-protectionist strategy neither began with Trump’s presidency nor ended with Trump’s term, as some scholars and intellectuals predicted. Although the methods and applications differ, US presidents have, since the GFC, been trying to reverse the de-industrialisation process by supporting domestic production on the one hand and implementing protectionist policies against rival countries, especially China, on the other. In 2009, the USA put into effect the Recovery and Reinvestment Act, which included the Buy American Provision aimed at supporting domestic manufacturing production. With its $800-billion support, this act triggered a latent technology war. The Obama administration formed the Advanced Manufacturing Partnership (AMP), a new industry move designed to improve domestic manufacturing capabilities in critical industries, boost investment in new generation robots, and ultimately strengthen energy-saving innovative manufacturing processes.48 Obama said at the AMP opening ceremony: “Today, I’m calling for all of us to come together – private sector industry, universities, and the government – to spark a renaissance in American manufacturing and help our manufacturers develop the cutting-edge tools they need to compete with anyone in the world.”49
Debunking the claims that protective measures started with Trump, Figure 3 shows that the number of policies that harm trading partners had been increased before 2016. Since 2008, the USA has been one of the torchbearers among G20 countries in applying these policies, a trend that accelerated after the Trump’s presidency. In contrast to earlier times, Trump adopted protectionist policies more saliently. On the pretext of security concerns and technology theft, Trump geared up the implementation of protectionist policies.50 In so doing, Trump tried to push China towards the bargaining table in order not to end US companies’ forced technology transfers to China and to give the trade volume between the USA and China a more balanced composition. Reducing China’s attractiveness for investments, and thereby encouraging reshoring, was another key objective of this policy. The USA maintained its high number of protectionist policies imposed on China for a long period after the GFC and increased the application of protectionism through Trump. Tariffs and non-tariff barriers aimed to slow down the Chinese economy and to reduce the temptation to move factories to China (see Figure 3). Unsurprisingly, Beijing imposed retaliatory sanctions against US goods.
US and China Protectionist Measures
Trump partly got what he wanted with the US–China Phase One Trade Deal, at least in a way that supported his populist rhetoric. While this agreement sets out comprehensive and ambitious articles and targets, the monitoring and enforcement mechanisms are not very clear. The COVID-19 pandemic, which broke out immediately after the signing of this agreement, raised questions over enforceability of the deal. The supply chain disruptions that the pandemic triggered strengthened the hand of the politicians that supported reshoring. Trump so argued that the COVID-19 pandemic justified his willingness to bring back factories: “This pandemic has reaffirmed the importance of keeping vital supply chains at home. We cannot outsource our independence, we cannot be reliant on foreign nations. I’ve been saying this for a long time. If we’ve learned one thing it’s let’s do it here, let’s build it here, let’s make it here.”51
China’s decisive rise in technological development, the socioeconomic problems the USA has experienced, and the shock of COVID-19 have led to a convergence of views on China among American politicians at both ends of the political spectrum. In this regard, that China’s increasing economic and technological power constitutes one of the biggest economic and security threats to the USA is one of the rare issues on which Democrats and Republicans can reach a consensus.52 According to a Pew Research Centre survey, nearly nine out of 10 Americans view China as an enemy or competitor rather than as a partner.53 In addition, two-thirds of Americans harbour cold feelings towards China and oppose with China’s stances on security, economy, and human rights. What may be surprising to some, namely, those that assumed the USA would revert to its pro-free trade stance in the post-Trump era, however, is Biden’s maintenance of a tough and protectionist position on China. In his first foreign policy statement, Biden defined China as the USA’s most serious competitor and lifted none of the tariffs imposed on China under the Trump administration.54 James Bacchus, founding judge and twice chairman of the Appellate Body of the WTO, described Biden’s attitude as “polite protectionism.”55
The ongoing economic rise of China and the recent COVID-19 pandemic make the reshoring strategy more critical for the US economy as a means to strengthen its production base, increase employment, and solve supply chain problems. Having stated that he will continue the fierce fight against China, Biden and his administration have made critical decisions towards securing and strengthening the supply chain. The Executive Order issued in this regard, in February 2021, indicated that the USA needs a resilient, diverse, and secure supply chain.56 The order clearly expresses the changing economic priorities of the USA in recent years, as follows: “The United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security… Resilient American supply chains will revitalize and rebuild domestic manufacturing capacity, maintain America’s competitive edge in research and development, and create well-paying jobs.”57
The USA’s decline in critical sectors and products, both in terms of technology level and production base, highlights the importance of reshoring. For example, the US share of global semiconductor manufacturing capacity declined from 37% in 1990 to today’s 12%.58 Meanwhile, China’s semiconductor manufacturing capacity, which was below 1% in 1990, today surpasses the USA’s by 15%.59 In this context, the USA sees the increasing competitiveness of this most critical component of Asia, especially China’s manufacturing sector, as a serious threat. In order to slow China’s economic rise and limit its technological power, an important law, called the “Innovation and Competition Act,” was passed in June 2021, with the joint support of Democrats and Republicans.60 Within its framework, $250 billion is allocated to technology, manufacturing, and basic research, including critical sectors such as AI, semiconductors, quantum computing, drones, and telecommunications equipment.61 Biden said in praise of the bill: “We are in a competition to win the 21st century, and the starting gun has gone off … We cannot risk falling behind.”62 The America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science (COMPETES) Act, which first came into force in the Bush era (2007) and later developed under Obama (2010), has once again been extensively advanced under the Biden administration (2022). While the America COMPETES Act of 2022 expands the amount and scope of support given to science, R&D, and technology in order to establish a competitive edge against China, it moreover aims to spread technology and advanced manufacturing development—not only to specific regions, such as Silicon Valley, but also to the entire country, including rural areas.
To support reshoring and regain manufacturing competitiveness, in addition to neo-protectionist moves, along with neo-protectionism, the USA has also brought to the forefront smart automation, whose technologies it has expanded to erode China’s competitive advantage of cheap labour and to make production in the USA even more attractive. Funding for AI companies in the USA has experienced a substantial increase—from $282 million in 2011 to $16.5 billion in 2019.63 US investments in smart automation technologies extend also to robotics. Robot intensity—measured by the number of industrial robots per worker in the USA — increased 2.6 times from 2000 to 2014.64 The use of robots in industry has also rapidly increased in recent years. The number of installed industrial robots per 10 000 manufacturing employees in the USA rose from 189 in 2016 to 255 in 2020.65
New generation technologies such as robotics, 3D printing, AI, big data, and the IoT have been integrated into the manufacturing industry to make production more streamlined and efficient and also to reduce the share of labour in the production process. In this way, increasing the weight of high-tech capital in the production process is expected to hone the USA’s competitive edge by diluting the importance of cheap labour as a competitive advantage.
Referred to by some as the Fourth Industrial Revolution, Industry 4.0, or the Second Machine Age, this technological transformation will, by reshuffling the importance of production factors, redefining production destinations, shaking GVCs, and changing the nature of jobs, lead to significant changes in the way the global economy functions.66 The transformation of industry is based on the automation of production, minimisation of labour force, and creation of maximum flexibility in the production process. By making the capital-based production method more productive and flexible, therefore, smart automation technologies can support reshoring.67 This technological transformation aims to increase the competitiveness of capital-abundant Western developed countries. Herein, smart automation technologies seem to be among the key drivers of the reshoring decision.68 External factors, such as pandemics and natural disasters, are expected to propel companies’ more rapid integration of smart automation technologies into the production process and comprehensive minimisation of the risk of supply chain disruptions, thus accelerating the reshoring process.69
Autonomous robots can make production more flexible, boost productivity, cut costs, increase the number and variety of products, and reduce the disabilities and deaths caused by hazardous working environments.70 Furthermore, AI will accelerate the automation of those tasks previously performed by humans by enhancing the capability of machines and devices to imitate intelligent human behaviour.71 Cyber-physical systems use various constituent components to connect the physical and virtual computing worlds via sensors. Easy control of production processes within these systems and stronger cooperation between production chains are expected to contribute to error reduction and timely completion of tasks assigned to machines. It is anticipated, moreover, that big data will make significant advances in our understanding of the world. Rapid access to comprehensive data may herald an immense transformation in enabling us to make more effective decisions in various fields, ranging from production to marketing.72
The IoT encompasses machines, devices, objects, and people through the Internet, interacting and transferring data between different units. In addition to delivering data management that accelerates process controls, with the help of big data, the IoT may be effective in the transformation of data into information that will mobilise the cyber-physical system, so laying the foundation for smart products and factories by easing management at different levels of the value chain through continuous connectivity. 3D printers produce 3D solid objects that are designed in digital environments, using different materials, and without the need for moulding. Additionally, by saving on time and materials, thereby reducing costs, 3D printers enable more flexible and customised production.
Although the Fourth Industrial Revolution seems to be a technological transformation process under the leadership of Germany, that the USA has also made significant investments in smart automation technologies should be underlined. In addition to the USA, China is also aggressively investing in these technologies.73 Having ranked a worldwide 23rd in robot intensity in 2016, China is now within the top 10 in this regard. In fact, it is China’s rapid technological progress that so worries the USA and that has led to its change in political attitude towards the country. China aims to maintain its strong growth figures by focusing more on high-tech sectors and products. As a part of this shift, China launched its “Made in China 2025” strategic plan, its objective to shift the Chinese production system towards high-tech goods in preparation for leadership in promising sectors such as IT, robotics, green energy technologies, aerospace equipment, and medical devices.74 Barry Naughton argues that these new strategies and policies, in being selective and targeted, differ significantly from China’s previous industrial policies since.75 It is China’s change in competition strategy and the acceleration it has achieved in technological progress that appears to have made reshoring and a technological Cold War inevitable in the eyes of US policymakers.
The use of smart automation technologies as part of an industrial policy priority strategy might indeed support and complement neo-protectionist policies towards reshoring. But, on the other hand, if smart automation technologies are successful over time, the need to enact protectionist policies for reshoring might dwindle, so enabling the USA to catalyse manufacturing investments through policies that, in being less protectionist, do not impede international trade and investment flows.
Discussion: Will These Strategies Work?
Can the USA succeed, through neo-protectionist policies and smart automation, in restoring American manufacturing and facilitating reshoring? And if it succeeds, will economic growth driven by protectionism and automation create enough well-paying, stable jobs? These are some of the key questions that deserve attention. There is no doubt that reviving the manufacturing industry may have positive repercussions for the US economy. Revitalising the manufacturing industry could increase the US GDP (by $460 billion) and also boost employment (by 1.5 million jobs), indicating an inclusive welfare gain.76 Making this real, however, requires policies that entice new talents, train low- and medium-skilled labours sufficiently to upgrade their fitness for the changing needs of the labour market, devote more federal resources to R&D—not only in applied research but also in basic research—and strengthen the country’s digital and physical infrastructure.
So where do neo-protectionist policies and smart automation fit into this equation? Neo-protectionist measures may not necessarily compel manufacturers to return to the USA from China, or at least not to the extent that US politicians expected. After the GFC, both the minimum wage and real wage doubled in China’s major cities, namely, Beijing, Shanghai, and Shenzhen.77 Labour costs in China have surpassed those of Mexico in recent years, which implies that China should no longer be regarded as a super cheap manufacturing hub.78 Along with rising wages, recent increases in inventory and shipping costs, as well as land prices, have diminished China’s attractiveness for MNCs as regards manufacturing in China.79 But as the USA’s industrial incentives increase, and bearing in mind the narrowing cost gap between the USA and China, certain MNCs will shift some of their production facilities to the USA. It should also be underlined that US MNCs consider not only the cost of items but also the quality factor when reshoring from China.80
As Shih observed, moving production facilities back to America may not be as easy as it seems and could be a lengthy process.81 The Reshoring Index compiled by Kearney, a global consulting company, points out that despite all efforts, reshoring has not yet become fully evident as a positive trend. The Reshoring Index reflects the year-on-year change in the manufacturing import ratio (MIR), which divides the import of manufactured goods from the 14 low-cost countries, which include China, by the US domestic gross manufacturing output. The MIR rose from 9.15% in 2008 to 14.19% in 2021, during which period this ratio fell only in 2019, when the trade war peaked, but rose once more after the outbreak of the COVID-19 pandemic, which indicates that there has been no acceleration in reshoring from Asia. Kearney’s survey of CEOs and other executives of American manufacturing companies, however, shows that US companies now share a more positive attitude towards reshoring compared with previous years.82
Incalescent trade and technology wars between the USA and China might also cause MNCs’ investments to shift to third countries and regions, such as Taiwan, Thailand, Malaysia, Vietnam, the Philippines, and Cambodia, whose export structures share similarities with China’s.83 Some US firms might also perceive nearshoring to Mexico or Canada as even more advantageous.84 Under this scenario, American manufacturing may not revive to the desired extent. However, the possibility that industrial investments will be withdrawn from China alone might make other Asian countries, and nearshoring, politically attractive for the USA.
The Role of Financial Globalisation and Skill-Biased Technological Change
In shifting their focus to international trade, many scholars and politicians often overlook financial globalisation. An empirical study by International Monetary Fund economists revealed that while trade globalisation reduces inequality, financial globalisation has positively associated itself with it.85 There have, since the 1980s, been significant reductions in financial regulations upon countries that have started a “race to the bottom” to extract more from global liquidity, and in regard to the rapidly growing financial sector’s expansion of its political influence through lobbying activities. It was such greed and weak financial governance that resulted in the GFC. Overwhelmed by the economic costs of these crises, developing countries have started accumulating large foreign currency reserves to protect themselves against speculative attacks. Since US markets are safe, liquid, and deep, most such reserves are held in dollars. The allure of US financial markets, however, has increased the demand for the dollar, thus causing it to become overvalued. The US trade deficit is hence associated with dollar dominance and over-financialisation. William Nordhaus so described this situation: “the US trade deficit is big because its financial markets are so attractive, not because of lousy trade deals.”86
Rising blue-collar unemployment and inequality in the USA also relate to the power of MNCs. Their profits have skyrocketed, and they have caused wage polarisation by changing the composition of labour demand. As a result, with the rise of globalisation, MNCs have become a prevalent force in exacerbating global functional inequality and lowering the global labour income share.87 High market concentration, fuelled by aggressive MNC acquisition strategies, is undermining economic dynamism by disrupting the process of creative destruction.88 Through shifting resources from R&D towards non-productive areas and using patents as a protective shield rather than for useful innovations, certain MNCs kill US productivity and slow America’s economic growth.89 MNCs’ attempts to avoid paying taxes also heighten public resentment of globalisation and cause institutional degeneration by undermining state capacity. Sachs argued that “Instead of blaming China and Mexico for the very real problems facing America’s workers, Trump should be taxing the booming incomes of capital owners (with their stock valuations at record levels) in order to ease the economic burdens on the workers. Unfortunately, he is doing the exactly opposite: giving yet more tax breaks to corporate capital on the claim that corporate tax cuts will also bring manufacturing jobs back home.”90
Skill-biased technological change, however, affects inequality more severely than globalisation.91 A recent empirical paper reveals that smart automation may be good for economic growth but is bad for inequality.92 Smart automation could seriously affect almost all sectors by redefining both job descriptions and the composition of labour demand. Certain scholars optimistically claim that even though some occupations might disappear, job opportunities for unskilled individuals might only reduce, thus culminating in transitional unemployment in the short term; however, technological change would create new occupations and job opportunities and lead to people working in more productive areas.93
Previous technological transformations have initially had devastating effects on the labour market but over time created job opportunities as individuals and economic institutions adapted to the new conditions. However, unlike these previous instances, the current transition is expected to be much shorter and could potentially affect many sectors simultaneously. Also important to underline is that the new technological transformation threatens not only blue-collar jobs but also routine, repetitive, independent, and semi-skilled white-collar ones.94 Under this scenario, workers might have insufficient time to acquire new skills and knowledge and institutions have insufficient capacity to reform their education systems and labour market regulations. Even Klaus Schwab, widely accepted as the intellectual father of the Fourth Industrial Revolution concept, warned against the potentially destructive impact of this transformation on the labour market.95
Acemoglu and Restrepo argue that smart automation technologies may reduce labour demand and the overall share of labour in the economy because such technologies adversely alter the task content of production for labour—termed “the displacement effect”—yet provide modest productivity gains, thus restricting the demand for labour in non-automated tasks.96 Thus, the positive consequences of the composition effect, compared with previous technological developments, may be limited. In the past, the mechanisation of agriculture shifted economic activity to labour-intensive manufacturing, leading to the creation of new jobs for both skilled and unskilled workers. Acemoglu and Retrespo referred to technologies that do not significantly increase labour productivity and which are induced by tax advantages over capital as “so-so technologies,” along with which extreme technological enthusiasm for automating everything would cause sluggish economic growth and lower labour demand.97 Acemoglu and Retrespo made the following cautionary comment: “If at this critical juncture insufficient attention is devoted to inventing and creating demand for, rather than just replacing, labour, that would be the ‘wrong’ kind of AI from the social and economic point of view. Rather than undergirding productivity growth, employment, and shared prosperity, rampant automation would contribute to anaemic growth and inequality.”98
US policymakers should pay attention also to the direction of the technological development that they plan to encourage. The USA needs innovation to create jobs that pay decent wages on the one hand and to support productivity-led economic growth on the other. Therefore, policymakers should provide incentives to innovate labour-augmenting technologies, instead of favouring excessive automation that brings negligible productivity gains.
Although the USA might attract more MNCs to make investments in its territories, such new manufacturers would create fewer jobs than expected. Although not official, data compiled by the Reshoring Initiative, a civil organisation that promotes reshoring and FDI, or at least the preservation of existing jobs there, show that more than 1 million manufacturing jobs have been announced through reshoring and FDI since 2010.99 This number may seem high, but when considering the size of the US economy and its various problems, the need for more employment should be glaringly evident, although how it can be achieved remains a question mark. In light of its ageing population and growingly anti-immigration attitude, the USA has been trying to bring smart automation to the forefront in an effort to reduce dependence on labour force. A recent empirical paper showed that countries with a high ratio of older to middle-aged workers are those most eager to adopt robots and other automation technologies.100 Between 2009 and 2019, the number of Americans aged 45–64 years (who will reach age 65 years over the next two decades) increased from 35 to 54.1 million. This figure is expected to reach 80.8 million in 2040.101 This situation constitutes a considerable disadvantage, bearing in mind both the shortage of domestic demand and labour force participation, if the USA is to revive its manufacturing industry.
Leaving automation technologies aside, it can be said that the USA needs more people willing to work in blue-collar jobs for reasonable wages in order to make reshoring more attractive. However, labour force participation has experienced a significant decline—from 67% to 62%—over the last two decades. Moreover, the flow of immigrants to the USA has been stemmed in recent years through stricter immigration enforcement. The USA should hence soften its immigration policies and implement new labour market programmes that encourage labour force participation.
There are also concerns that recent technological innovations will not galvanise growth by boosting productivity. Gordon questioned the effectiveness of recent waves of technological innovation, emphasising that, despite the rapid increase in innovation, productivity in the USA has been stagnating for decades.102 Mazzucato observed that many MNCs have been using patents to protect their profits and market shares, rather than to create real value and contribute to humanity and the economy by increasing productivity and employment.103 Only when smart automation technologies are designed specifically to create real value, will the economic problems of the USA, such as sluggish productivity growth and deteriorating standards of living among blue-collar workers, be remedied.
How Might China’s Technological Progress Be Affected?
China has experienced impressive technological progress; the genie is now irretrievably out of the bottle.104 But the main reason for the country’s technological dynamism and its rapid closing of the technology gap with the USA in recent years goes beyond China’s unfair trade practices to the loss of the USA’s economic dynamism due to its internal problems and policy choices, namely, declining R&D incentives, over-financialisation, rapidly growing market concentration, and distortions in the tax system.105 As such, the USA will be unable to block China’s expansion of its technological capacity simply by raising tariffs and obstructing technology transfers. Although the latter may be used as a threat tactic to push China’s further liberalisation of its markets and to combat restrictive and coercive practices against MNCs,106 exacerbating trade and technology wars beyond this limit will damage both the USA and global economy.107
China has proved that it can develop technology through learning by doing. Ultimately, it has become capable of innovating cutting-edge technologies through use of its native resources (capital, rare earth, manpower, and experience). But this is not to say that the Chinese economy is impervious to the USA’s protectionist and aggressive policies. Despite its immense economic progress, China is still technologically dependent on the USA and other Western countries in many critical sectors. That a significant portion of China’s success and progress stems from capitalising on global economic networks through purchasing and licensing foreign technologies, investing in foreign companies with target technologies, utilising forced technology transfers from inbound FDIs, and weakening the enforcement of intellectual property rights is undeniable. Restricting technology transfers to China, so impeding access to critical intermediate goods, might indeed hinder China’s economic development. But what we are trying to emphasise here is that the USA cannot build an insurmountable wall to China’s technological progress solely through use of neo-protectionist policies and smart automation technologies. With a more sophisticated and holistic policy approach, however, alongside neo-protectionist policies and smart automation technologies, the USA might also curb the Chinese economy by adding to the bumps on the economic development path. Emerging powers are likely to gain rapid growth momentum through reliance on technology transfers and physical capital investments to make their first steps up the economic development ladder. This is what China did between the late 1970s and the early 2000s. But as emerging powers like China approach the technological frontier, innovation and productivity become much more decisive in catching up with advanced economies. China is currently at a crucial critical juncture and faces an “innovation imperative” challenge.108 The reflections of this technology war and the decisions of the Beijing administration regarding economic reforms will determine whether the Chinese economy can escape the middle-income trap.
The USA’s Need for an Integrated Policy Framework
The USA cannot rely solely on neo-protectionist policies and automation to revitalise its manufacturing industry and to maintain its economy’s vitality amid technological competition with China. MacDonald and Parent hold that the USA should act according to a comprehensive and multidimensional understanding of reform to properly manage its relative decline: “Reforming the military is only part of the picture. The historical record suggests that efforts to rethink a nation’s foreign policy should be accompanied with parallel efforts to reinvigorate its domestic institutions and economy. Successful strategic adjustment starts abroad but ends at home … In terms of positive policies, there are opportunities to boost federal investment in physical infrastructure, education and training, and R&D. The needs in each of these areas are urgent.”109
The country’s physical infrastructure needs to be renewed in order to persuade industrialists and entrepreneurs to reshore because ageing infrastructure weakens US competitiveness.110 The USA is moreover in danger of losing its global pre-eminence in regard to a skilled workforce.111 Its government should devote more resources to education in order to update the labour force’s skills and enhance its adaptation to changing production processes and technologies. The needs to increase public support for science and research and change the composition of public resources allocated to these fields are among other critical issues.112 Directing public support for the basic sciences with productivity-enhancing effects, rather than applied sciences with sterile productivity, might be expected to heighten the US economy’s competitiveness in the long run.113 It is vital to take steps not only to increase welfare numerically but also to share it fairly. A policy that pays no heed to socioeconomic problems like income inequality, thus abandoning millions of individuals, invites populism and patronage politics by disrupting social peace and deepening political polarisation. This toxic political atmosphere, in turn, prevents the country from achieving long-term economic goals by virtue of its implementation of aggressive and myopic policies that target the short-term economic goals. When the policy-making process becomes so enmired, properly designing and implementing industrial or technological policies is no longer possible, and the economy moves away from creativity and competitiveness. Therefore, domestic economic policies towards shared prosperity should not be considered independently of the US economy’s competitiveness in international trade and its technological position on the global stage.
The USA needs to support technologies that not only increase productivity but also complement, rather than replace, labour. In this context, the private sector should be directed towards these technologies by channelling public resources to appropriate R&D projects. Supporting excessive automation just to maintain current supremacy on the technology warfront can hurt the economy in both the medium and long term by creating social and political problems. US policymakers should decisively implement inclusive structural labour and product market institution reforms, such as “building a better social safety net, providing worker protection, investing in the skills of all citizens, and implementing robust regulations to prevent monopolies from choking off high-wage job creation.”114 The current US tax system puts a heavy burden on employment and workers, while easing the tax burden on capital, thus motivating companies to invest in robots and software rather than employment. As a result, automation rises to a level well above what may be considered socially optimal.115 Making the tax system fair is essential to the composition of both economic growth and employment.
During the period between WWII and the early 1970s, known as the Bretton Woods period, economic understanding and practices aimed gradually to liberalise international trade, while the welfare state system simultaneously eroded the negative effects of free trade on unemployment and income inequality through fiscal and distributive policies. This strategy, which John G. Ruggie described as “embedded liberalism,”116 had both national and international dimensions. At the national level, embedded liberalism tried to guarantee social peace and civic participation by offering a specific welfare to the large mass of the people; at the international level, it contended for ideological victory in the Cold War in demonstrating that the capitalist and liberal system could produce more satisfactory results than communism and socialism. As a “central institutional feature”117 of international economic governance during the Bretton Woods period, embedded liberalism was used by many Western developed countries to establish a balance between economic efficiency and equity by giving governments substantial autonomy to implement both interventionist and welfare state policies. Instead of promoting beggar-thy-neighbour policies, as experienced during the 1930s, embedded liberalism simultaneously supported multilateralism, interventionist policies, and welfare state mechanisms.
With the rise of neoliberalism and globalisation, this picture changed dramatically. The increasing weight of financial institutions and MNCs in the US economy and politics has deeply affected the policy choices of governments. Deregulations and low corporate taxes have empowered capital owners. The share of national income paid to workers, meanwhile, has declined, mostly due to the nature of technological change and the offshoring of labour-intensive jobs. This is a trend experienced in the USA and many other advanced countries. As tax revenues fell, state capacity decayed, and public resources devoted to areas critical to competitiveness and growth, from education to R&D, dwindled. This environment caused economic and political institutions—even in a developed country like the USA, where democracy is relatively strong—to weaken. And weak institutions feed political polarisation, which leads to political gridlock.
Although the Biden administration is willing to push the limits of fiscal policies to support American manufacturing and innovation, the toxic political climate sometimes impedes progress in the decision-making mechanism. This, in turn, delays growth-enhancing reforms and investments, causing the USA to lose its competitiveness against China. Although revitalising manufacturing by bringing back US factories seems a bipartisan goal in US politics, when it comes to policy-making, political polarisation and the different expectations of US states can divide politics, and even different wings of the same party, valid for both Democrats and Republicans, which could display different attitudes towards certain supportive bills. A new type of embedded liberalism compromise is needed118 but has not been achieved despite the intervening decades. As such a new balancing compromise could not be reached, trust in multinationalism and free international trade has declined, and protectionist policies and populism have gained strength.119
Conclusion
While globalisation enables the financial system to deepen, service sectors to flourish, superstar firms to dominate, and highly skilled individuals to rapidly move up the US social ladder, it also accelerates de-industrialisation, leading to a decline in productivity and a rise in inequality and blue-collar unemployment. Through globalisation, China has succeeded in increasing its share of the global economy. But China’s rapid technological rise has alarmed the USA. To revitalise its manufacturing industry and reshore production facilities, with the aim of regaining its competitive edge, therefore, the USA has since the GFC implemented neo-protectionist policies and used smart automation technologies.
As a challenger like China continues to test US hegemony, it should come as a no surprise that US administrations are adopting policies, which, under normal conditions, would be considered suboptimal. Although neo-protectionist measures and excessive automation could have certain short-term side effects, such as inflation and unemployment, on its own economy, the USA may nevertheless use them, to either maintain or increase its relative power against China, in the belief that such policies and technologies will damage the Chinese economy more than its own. At this point, therefore, the USA aims to maximise its relative power.
In this article, we argue that neo-protectionist policies and smart automation technologies may indeed increase manufacturing production and employment in the USA. However, if complementary policy steps are not taken in good time, positive effects will be fewer than expected. In addition, while a technology war may impede economic growth and spark inflation on a global scale, unless managed with a human-centred approach, smart automation will moreover exacerbate inequality and unemployment and be used as a playing field for spoiled scientists, entrepreneurs, and billionaires. Excessive automation should not blunt people’s enthusiasm for the work that brings dignity to their lives, and employment and shared prosperity should not be sacrificed to quantitative goals and the objectives of profitability, productivity, and growth under all circumstances. Unless a balance is achieved between national and international interests and between competitiveness and socioeconomic issues, the stable progress in the medium to long term of any economy remains unlikely.
The fundamental source of economic problems in the USA lies not in unfair trade practices or China’s technology theft. The culprits are rather over-financialisation, unfair tax systems, decayed state capacity, high market concentration, and fading interest and support for real R&D investments. To resolve the economic problems of today and in the future, the USA must give more support to technologies that increase labour productivity and hence create more jobs. Instead of substituting the workforce, the USA should repair the cracks in its taxation system and create compensatory mechanisms that enable globalisation’s losers to hold on to their standard of life by making the international trade system more equitable.
Acknowledgements
We would like to thank the editorial team and two anonymous reviewers for their constructive comments and suggestions which have both improved the quality of this paper and made it more readable.
Conflict of interest statement.
We do not have any financial and personal relationships with other people or organizations that could inappropriately influence (bias) our work.
Footnotes
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Although the economic pressure the USA has brought to bear against China is generally regarded as a trade war, it goes far beyond closing the trade deficit between the USA and China through tariff hikes and non-tariff barriers. The fundamental aim of such economic pressure is to maintain the USA’s technological superiority over China. That is why this article finds it more appropriate to call this economic power struggle a technology war of which trade sanctions are a feature.
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H. David Autor et al., “Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure,” American Economic Review, Vol. 110, No. 10 (2020), pp. 3139–83.
The United States Census Bureau, “Trade in Goods with China,” trade balance data between the USA and China can be accessed at https://www.census.gov/foreign-trade/balance/c5700.html.
Felix Richter, “China Is the World’s Manufacturing Superpower,” Statista, 4 May, 2021, https://www.statista.com/chart/20858/top-10-countries-by-share-of-global-manufacturing-output/#:∼:text=According%20to%20data%20published%20by,China%20overtook%20it%20in%202010.
Statista, “Direct Investment Position of the United States in China from 2000 to 2021,” 2 August, 2022, https://www.statista.com/statistics/188629/united-states-direct-investments-in-china-since-2000/.
Thilo Hanemann et al., “Two-Way Street: 2021 Update US-China Investment Trends,” Rhodium Group and National Committee on U.S.-China Relations, May, 2021, https://rhg.com/wp-content/uploads/2021/05/RHG_TWS-2021_Full-Report_Final.pdf.
World Development Indicators, “High-Technology Exports (% of Manufactured Exports),” these data are available at https://data.worldbank.org/indicator/TX.VAL.TECH.MF.ZS.
These data are from the National Center for Science and Engineering Statistics (NCSES) and available at https://ncses.nsf.gov/pubs/nsf22330#:∼:text=U.S.%20Total%20R%26D,-Year%2Dover%2Dyear&text=The%20U.S.%20R%26D%20total%20in,in%202020%20(figure%201).
U.S. Bureau of Labor Statistic, “Productivity Change in the Nonfarm Business Sector,” https://www.bls.gov/productivity.
“U.S. Manufacturing Employees, (in Thousands, Seasonally Adjusted),” U.S. Bureau of Labor Statistics, https://fred.stlouisfed.org/series/MANEMP.
The White House, “Fact Sheet: President Obama Announces New Actions to Further Strengthen U.S. Manufacturing,” 27 October, 2014, https://obamawhitehouse.archives.gov/the-press-office/2014/10/27/fact-sheet-president-obama-announces-new-actions-further-strengthen-us-m.
The White House, “President Obama Launches Advanced Manufacturing Partnership,” 24 June, 2011, https://obamawhitehouse.archives.gov/the-press-office/2011/06/24/president-obama-launches-advanced-manufacturing-partnership.
Douglas A. Irwin, Free Trade Under Fire (Princeton: Princeton University Press, 2020); P. Chad Bown, “Trump’s Steel and Aluminum Tariffs Are Counterproductive: Here Are 5 More Things You Need to Know,” The Peterson Institute for International Economics, 7 March, 2018, https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-steel-and-aluminum-tariffs-are-counterproductive.
Jefferey Martin, “Trump Says Coronavirus Pandemic Reaffirms Importance of Domestic Vital Supply Chains: ‘We Cannot Outsource Our Independence’,” Newsweek, 20 April, 2020, https://www.newsweek.com/trump-says-coronavirus-pandemic-reaffirms-importance-domestic-vital-supply-chains-we-cannot-1499057.
Janan Genash, “America’s Best Hope of Hanging Together Is China,” Financial Times, 16 February, 2021, https://www.ft.com/content/de6a5d8d-3745-4b07-96ff-0a0d59380f9e.
Laura Silver, Kat Devlin, and Christine Huang, “Most Americans Support Tough Stance Toward China on Human Rights, Economic Issues,” Pew Research Center, 4 March, 2021, https://www.pewresearch.org/global/2021/03/04/most-americans-support-tough-stance-toward-china-on-human-rights-economic-issues/.
The White House, “Remarks by President Biden on America’s Place in the World,” 4 February, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/04/remarks-by-president-biden-on-americas-place-in-the-world/.
For more discussion, see James Bacchus, “Biden and Trade at Year One the Reign of Polite Protectionism,” CATO Policy Analysis, No. 926, 26 April, 2022, https://www.cato.org/sites/cato.org/files/2022-04/PA-926.pdf.
The White House, “Executive Order on America’s Supply Chains,” 24 February 2021, https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supply-chains/.
Ibid.
Antonio Varas et al., “Government Incentives and U.S. Competitiveness in Semiconductor Manufacturing,” Boston Consulting Group and Semiconductor Industry Association, September 2020, https://web-assets.bcg.com/27/cf/9fa28eeb43649ef8674fe764726d/bcg-government-incentives-and-us-competitiveness-in-semiconductor-manufacturing-sep-2020.pdf.
Graham Allison et al., “The Great Tech Rivalry: China vs the U.S.,” Belfer Center for Science and International Affairs Harvard Kennedy School, 2021, p. 22.
Andrew Desideio, “Senate Advances a Rare Bipartisan Deal on Countering China,” Politicio, 15 August, 2021, https://www.politico.com/news/2021/05/17/senate-bipartisan-deal-countering-china-489152.
Vincent Ni, “China Denounces US Senate’s $250bn Move to Boost Tech and Manufacturing,” The Guardian, 9 June, 2021, https://www.theguardian.com/us-news/2021/jun/09/us-senate-approves-50bn-boost-for-computer-chip-and-ai-technology-to-counter-china.
David Shepardson, “U.S. Senate Passes Sweeping Bill to Address China Tech Threat,” Reuters, 9 June, 2021, https://www.reuters.com/world/us/us-senate-set-pass-sweeping-bill-address-china-tech-threat-2021-06-08/.
This data is from Statista. It is available at https://www.statista.com/statistics/672712/ai-funding-united-states.
Daron Acemoglu and Pascual Restrepo, “Robots and Jobs: Evidence from US Labor Markets,” Journal of Political Economy, Vol. 128, No. 6 (2020), pp. 2188–244.
These data are from the International Federation of Robotics. It is available at https://ifr.org/ifr-press-releases/news/robot-density-nearly-doubled-globally; https://ifr.org/downloads/press/Executive_Summary_WR_2017_Industrial_Robots.pdf.
Brynjolfsson and Mcafee, The Second Machine Age; Schwab, The Forth Industrial Revolution.
Bernhard Dachs, Steffen Kinkel, and Angela Jäger, “Bringing It All Back Home? Backshoring of Manufacturing Activities and the Adoption of Industry 4.0 Technologies,” Journal of World Business, Vol. 54, No. 6 (2019), 101017.
Luciano Fratocchi and Cristina Di Stefano, “Do Industry 4.0 Technologies Matter When Companies Backshore Manufacturing Activities? An Explorative Study Comparing Europe and US,” in Marco Bettiol, Eleonora Di Maria, and Micelli Stefano, eds., Knowledge Management and Industry 4.0. New Paradigms for Value Creation, Knowledge Management and Organizational Learning Series, Vol. 9 (Cham: Springer Nature, 2020), pp. 53–83.
Roger Strange, “The 2020 Covid-19 Pandemic and Global Value Chains,” Journal of Industrial and Business Economics, Vol. 47, No. 3 (2020), pp. 455–65; Paolo Barbieri et al., “What We Can Learn about Reshoring after Covid-19?” Operations Management Research, Vol. 13 (2020), pp. 131–6; Peter Enderwick and Peter Buckley, “Rising Regionalization: Will the Post-COVID-19 World See a Retreat from Globalization?” Transnational Corporations, Vol. 27, No. 2 (2020), pp. 99–112.
Schwab, The Forth Industrial Revolution; Ford, Rise of Robots.
Daron Acemoglu and Pascual Restrepo, “Automation and New Tasks: How Technology Displaces and Reinstates Labor,” Journal of Economic Perspectives, Vol. 33, No. 2 (2019), pp. 3–30.
Viktor Mayer-Schönberger and Kenneth Cukier, Big Data: A Revolution That Will Transform How We Live, Work, and Think (New York: Houghton Mifflin Harcourt, 2013).
Hong Cheng et al., “The Rise of Robots in China,” Journal of Economic Perspectives, Vol. 33, No. 2 (2019), pp. 71–88.
Ling Li, “China’s Manufacturing Locus in 2025: With a Comparison of ‘Made-in-China 2025’ and ‘Industry 4.0’,” Technological Forecasting and Social Change, Vol. 135 (2018), pp. 66–74.
Barry Naughton, The Rise of China’s Industrial Policy, 1978 to 2020 (Mexico City: Universidad Nacional Autónomica de México, Facultad de Economía, Centro de Estudios China-México, 2021), pp. 91–2.
See James Manyika et al., “Building a More Competitive US Manufacturing Sector,” McKinsey Global Institute, 2021, https://www.mckinsey.com/featured-insights/americas/building-a-more-competitive-us-manufacturing-sector.
China Labour Bulletin, “Employment and Wages,” 12 December, 2018, https://clb.org.hk/content/employment-and-wages; International Labor Office, Global Wage Report 2018/19: What Lies Behind Gender Pay Gaps (Geneva: ILO, 2018).
PWC, “Beyond China: US Manufacturers Are Sizing Up New—and More Diversified and Cost-efficient—Global Footprints,” July, 2020, https://www.pwc.com/us/en/library/fit-for-growth/assets/ffg-industrial-supply-chain-footprint.pdf.
Harold L. Sirkin, Michael Zinser, and Douglas Hohner, “Made in America, Again: Why Manufacturing Will Return to the U.S.,” The Boston Consulting Group, 2011, https://www.nist.gov/system/files/documents/2017/05/09/file84471.pdf.
Weifeng Zhai, Shiling Sun, and Guangxing Zhang, “Reshoring of American Manufacturing Companies from China,” Operations Management Research, Vol. 9, No. 3 (2016), pp. 62–74.
Shih, “Bringing Manufacturing Back to the U.S.”
Patrick Van Den Bossche et al., “The Tides Are Turning: The 2021 Reshoring Index,” Kearney, 2022, https://www.kearney.com/consumer-retail/article/-/insights/the-2021-reshoring-index-the-tides-are-turning.
Massimiliano Cali, “The Impact of the US-China Trade War on East Asia,” VOX CEPR Policy Portal, 16 October, 2018, https://cepr.org/voxeu/columns/impact-us-china-trade-war-east-asia.
Bossche et al., “The Tides Are Turning.”
Florence Jaumotte, Subir Lall, and Chris Papageorgiou, “Rising Income Inequality: Technology, or Trade and Financial Globalization?” IMF Economic Review, Vol. 61, No. 2 (2013), pp. 271–309.
William Nordhaus, “The Trump Doctrine on International Trade: Part Two,” VOX CEPR Policy Portal, 8 October, 2018, https://voxeu.org/article/trump-doctrine-international-trade-part-two.
UNCTAD, Trade and Development.
Ufuk Akcigit and Sina T. Ates, “Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory,” American Economic Journal: Macroeconomics, Vol. 13, No. 1 (2021), pp. 257–98.
Mariana Mazzucato, The Value of Everything: Making and Taking in the Global Economy (New York: Hachette, 2018).
Jeffrey D. Sachs, A New Foreign Policy: Beyond American Exceptionalism (New York: Columbia University Press, 2018), pp. 133–4.
Jaumotte, Lall, and Papageorgiou, “Rising Income Inequality.”
Andrew Berg, Edward F. Buffie, and Luis-Felipe Zanna, “Should We Fear the Robot Revolution?” IMF Working Paper, No. 18/116 (2018).
Georg Graetz and Guy Michaels, “Robots at Work,” The Review of Economics and Statistics, Vol. 100, No. 5 (2018), pp. 753–68; Michael Koch, Ilya Manuylov, and Marcel Smolka, “Robots and Firms,” CESifo Working Paper, No. 7608 (2019).
Jesuthasan and Boudreau, Reinventing Jobs; Richard Baldwin, The Great Convergence: Information Technology and the New Globalization (Cambridge, MA: The Belknap Press of Harvard University Press, 2016).
Klaus Schwab and Nicholas Davis, Shaping the Future of the Fourth Industrial Revolution (New York: Crown Publishing Group, 2018).
Acemoglu and Restrepo, “Automation and New Tasks.”
Ibid.; Daron Acemoglu and Pascual Restrepo, “The Wrong Kind of AI? Artificial Intelligence and the Future of Labor Demand,”NBER Working Paper, No. 25682, (2019).
Acemoglu and Restrepo, Ibid.
Reshoring Initiative, “2020 Data Report” and “2021 Data Report” https://reshorenow.org/blog/reshoring-initiative-2020-data-report/ and https://reshorenow.org/blog/reshoring-initiative-ih2021-data-report/.
Daron Acemoglu and Pascual Restrepo, “Demographics and Automation,” Review of Economic Studies, Vol. 89, No. 1 (2022), pp. 1–44.
U.S. Department of Health and Human Services, “2020 Profile of Older Americans,” The Administration for Community Living, 2021, https://acl.gov/sites/default/files/Aging%20and%20Disability%20in%20America/2020ProfileOlderAmericans.Final_.pdf.
Robert J. Gordon, The Rise and Fall of American Growth: The US Standard of Living Since the Civil War (Princeton: Princeton University Press, 2016).
Mazzucato, The Value of Everything.
China’s reform process, which is so essential to build an innovative and knowledge-based economic structure, has lost considerable momentum in recent years as it would threaten the privileges of the elite and the survival of the Chinese Communist Party’s political structure (Hal Brands, “The Dangers of China’s Decline,” Foreign Policy, 14 April, 2022, https://foreignpolicy.com/2022/04/14/china-decline-dangers/). China might be hoist with its own petard by potentiating the role of state in the economy and suppressing the financial integration of its tech companies into global markets. These moves could slow down the Chinese economy by impeding the development of private companies that fuel innovation and provide the impetus for technological catch-ups. If China slows or even reverses reforms to make its economic institutions more inclusive, this will help the USA to persuade companies towards reshoring.
Sachs, A New Foreign Policy; Jonathan Gruber and Simon Johnson, Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream (New York: Public Affairs, 2019).
Irwin, “The False Promise of Protectionism.”
Amiti, Redding, and Weinstein, “The Impact of the 2018 Trade War”; Davide Furceri et al., “Macroeconomic Consequences of Tariffs,” NBER Working Paper, No. 25402 (2018).
Andrew B. Kennedy and Darren J. Lim, “The Innovation Imperative: Technology and US–China Rivalry in the Twenty-First Century,” International Affairs, Vol. 94, No. 3 (2018), pp. 553–72.
Paul K. MacDonald and Joseph M. Parent, “The Road to Recovery: How Once Great Powers Became Great Again,” The Washington Quarterly, Vol. 41, No. 3 (2018), pp. 21–39.
Michael E. Porter et al., “A Recovery Squandered: The State of U.S. Competitiveness,” Harvard Business School, December, 2019, https://www.hbs.edu/competitiveness/research/Pages/research-details.aspx?rid=85.
Nicholas Eberstadt and Evan Abramsky, “America’s Education Crisis Is a National Security Threat: How a Smarter World Is Changing the Balance of Power,” Foreign Affairs, 20 September, 2022, https://www.foreignaffairs.com/world/america-education-crisis-national-security-threat.
Gruber and Johnson, Jump-Starting America.
Ufuk Akcigit, Douglas Hanley, and Nicolas Serrano-Velarde, “Back to Basics: Basic Research Spillovers, Innovation Policy, and Growth,” Review of Economic Studies, Vol. 88, No. 1 (2021), pp. 1–43.
Daron Acemoglu, “It’s Good Job, Stupid,” Economics for Inclusive Prosperity, Research Brief, June 2019, p. 8, https://econfip.org/wp-content/uploads/2019/06/Its-Good-Jobs-Stupid.pdf.
Daron Acemoglu, Manera Andrea, and Paascual Restrepo, “Does the US Tax Code Favor Automation?” Brookings Papers on Economic Activity, Spring (2020), pp. 231–85.
John Gerard Ruggie, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization, Vol. 36, No. 2 (1982), pp. 379–415.
Ruggie, “International Regimes, Transactions, and Change,” p. 415.
John Gerard Ruggie, “Globalization and the Embedded Liberalism Compromise: The End of an Era?” Max Planck Institute for the Study of Societies, MPIfG Working Paper 97/1 (1997).
Dani Rodrik, “Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-Wing Populism,” Annual Review of Economics, Vol. 13 (2021), pp. 133–70; Rafael Di Tella and Dani Rodrik, “Labour Market Shocks and the Demand for Trade Protection: Evidence from Online Surveys,” Economic Journal, Vol. 130, No. 628 (2020), pp. 1008–30.
