Gerard DiPippo, Francesca Ghiretti & Benjamin Lenain
The Trump administration is attempting to spur an industrial revival in the United States by imposing tariffs on trading partners. China—a key target of U.S. tariffs—has experienced the largest industrial expansion in history, rising from poverty to become the top global manufacturer and exporter within a generation. Despite the unique nature of its political economy and the challenges it faces, China offers valuable lessons that could benefit the United States as Washington attempts to increase domestic manufacturing. Among them:
- Beijing did not rely on a tariff-based traditional import substitution strategy. China implemented many promotive and restrictive measures to boost domestic investment and production, especially by attracting foreign direct investment (FDI) that facilitated tech transfer and skills upgrading. Tariffs and non-tariff barriers were among its many policy tools and by themselves don't explain China's rapid industrialization.
- China has used long-term plans that offer a degree of predictability. When Beijing says it wants to achieve a given goal, investors listen and respond accordingly.
- China was able to achieve export-oriented growth and investment in the 2000s because its economy was comparatively small. Today, it's the second-largest economy and can no longer rely on exports for sustained growth. For the United States—the world's largest economy—export-oriented growth would be even more infeasible.
- Beijing's export competitiveness isn't based on an undervalued exchange rate. China's market interventions focused on keeping its currency weak for over a decade, but that changed more than 10 years ago. The era of rapidly rising official foreign exchange reserves among emerging markets, especially China, is over. That will make potential exchange rate negotiations between the United States and its trading partners more difficult.
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