Where You Stand Depends on Where You Sit…

I am talking about the rules that China does and doesn’t play by. China has developed an alternative to Western style democratic capitalism. Call it authoritarian capitalism if you will. China does not feel that it has to adapt and accept the standards from the West. It is developing its own viable, and it thinks, better model.

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Part of this model calls for the country to be world competitive if not dominating in ten high tech industries. This “Made in China 2025” is an admirable goal if it were not for the fact, as Mr. Trump and many critics argue, that China steals some of the technology involved here, forces companies who want to do business in China to disclose state-of-the-art technology and favors state led companies over foreign ones in procurement.

President Trump is calling China out on these moves. China has always been willing to make temporary changes to their buying and selling patterns to satisfy the U.S. but they have not been willing to make any systemic changes. Perhaps the only way to require them to do this is by brute force, restricting the sale of sensitive technology to Huawei for instance.

Knowing President Trump and his tweets, this all might be resolved amicably tomorrow, who knows, but the fact remains that China is a fast rising #2 with all the intention of being #1, and this power struggle with the U.S. will continue for a long time.

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We risk today the danger of creating a two or three system model for the global economy, a system for China, a system for the U.S. and maybe a third system for Europe. This means perhaps different standards for 5G, different standards for PCs and smartphones and whole different platforms for social media. It will throw sand in the gears of global growth. The outcome is very much unclear, certainly above my pay grade right now. What will a Balkanization of the global economy look like? Will the world’s supply chain shift from China and if so to where? Back to higher cost U.S. or to Mexico, Vietnam, Malaysia, etc.? Will we see consumer nationalism develop, with the Chinese buying Huawei while we buy Apple? Lots of questions, few answers.