May 24th 2018 | The Economist
WANG XINGXING taps the back of his dog which, on command, stands tall, shakes its legs and struts forward. It is not a well-trained pooch so much as a well-built one. Laikago, its name, looks like a miniature version of the robo-dogs that propelled Boston Dynamics, an American robotics company, to fame. Mr Wang, a boyish 28-year-old, started work on his dog as a graduate student. It can walk on uneven surfaces, carry small loads and steady itself when kicked lightly.
Laikago is a far cry from the Boston Dynamics breed, which is sturdier, swifter and smarter. That has not stopped China’s patriotic media from asking whether the firm Mr Wang founded, Unitree, could now rival the American one. But Boston Dynamics has been at it for more than two decades. Unitree is just getting going. It plans to open its first factory soon. For now it has a cluttered workshop in the city of Hangzhou, a tech hub west of Shanghai.
Unitree is not alone in China. The government has declared robotics a priority. On the other side of Hangzhou, a university research team has also started making robo-dogs. In northern China there are at least three companies doing the same. So, reportedly, is the army. China’s robotic technology, by most measures, lags behind America’s. But the country has abundant talent, money and determination. Its robo-dogs are snapping at America’s heels.
The pooches also show how a trade conflict with America could hurt China. Mr Wang admits that their most valuable parts—their semiconductors—are mostly made in America. Were the American government to block exports of these to China, Mr Wang’s dogs would not work.
The phoney war
That is an extreme scenario. But it is the kind that China’s government and companies feel they have to consider as their country’s dispute with its largest trading partner grinds on. In the past few days, their fears have ebbed and flowed. On May 20th America’s Treasury secretary, Steven Mnuchin, said his country would refrain for now from its threat to impose punitive tariffs. “We’re putting the trade war on hold,” he told Fox News after two days of talks in Washington with Liu He, a Chinese deputy prime minister. But Mr Trump is unpredictable. He may be mindful of the outrage that Mr Mnuchin’s talk has stirred among China-sceptics in Washington. After first declaring success in the negotiations, Mr Trump later said he was dissatisfied. So Chinese officials are still preparing for the worst. And they know that even if this storm blows over, others lie ahead. Rivalry with America is getting more intense.
After the talks, the two sides issued a statement pledging to reduce America’s $375bn trade deficit with China “substantially”. But the agreement was strikingly light on details. The Americans wanted China to cut its trade surplus by $200bn. China refused, pledging only to buy more. Later it said it would cut import duties on cars to 15%, but that was well above the 2.5% level the Americans had demanded. Mr Trump boasted that China had agreed to buy “massive amounts” of American farm goods. But this will have a modest impact on the bilateral trade balance. It will not satisfy some American negotiators who have fumed about China’s industrial policies, calling them mercantilism gone wild.
The next steps will depend to a worrying extent on Mr Trump’s whims. He could claim China’s offers, however limited, as a victory. Or he may conclude that Xi Jinping, China’s leader, has played him for a fool and fire off a petulant tweet, nudging the two countries’ relationship back into crisis and reigniting global fears of a full-blown trade conflict.
It may be that Mr Trump does want to ease tensions with China, but only as a temporary ruse to enlist Mr Xi’s support for talks due to be held on June 12th between Mr Trump and Kim Jong Un, North Korea’s dictator. Once that event is over (if it actually takes place), Mr Trump could again turn up the heat on China. Trade is one of the few issues on which he is close to consistent. Impervious to economic logic, Mr Trump thinks that America loses when it imports more than it exports. China accounts for about three-fifths of America’s trade deficit (see chart 1).
And China is not merely contending with a truculent Mr Trump and his more hawkish economic advisers. A broad swathe of American opinion has turned against it. Businesses see a China that is determined to prop up its own companies, both at home and, increasingly, abroad. America’s national-security officials see a China that is converting economic heft into geopolitical clout and military might. Kenneth Jarrett of the American Chamber of Commerce in Shanghai says that Mr Trump’s anger about the deficit has at least helped China to wake up to the depth of foreign frustration. A quick deal in which China pledges to buy more American goods will not ease it.
Leading the charge against China on economic matters has been Robert Lighthizer, the United States Trade Representative. In March, after an investigation into China’s trade practices, he alleged that China had, time and again, stolen American technology or forced firms to hand it over. He called on China to stop subsidising industries that it deems strategic, from renewable energy to electric vehicles.
From China’s standpoint, this is a non-starter. Its plan known as “Made in China 2025” identifies ten high-tech industries and sets out global market-share goals. For policymakers in Beijing, it is their blueprint for reaching the next level of development—a reasonable desire for a middle-income country, as 19th-century Americans would have agreed. But foreign governments and businesses see it as a declaration of intent to seek global dominance.
The more the rest of the world complains, the more irascible China sounds. Mei Xinyu, a researcher in the commerce ministry, likened America’s demands to what are known in China as the country’s “unequal treaties” with foreign powers in pre-communist days. The most notorious of these accords was forced on China in 1842 by Britain after a war over British opium sales. It required China to open its doors to foreign trade and cede Hong Kong. State media have been even more colourful than Mr Mei. “Anyone who tries to hinder China’s emergence is like a mantis trying to stop a car, or an ant trying to shake a tree, and will pay a bitter price in the end,” said the Communist Party’s mouthpiece, the People’s Daily.
Despite such talk, China worries. There are four main ways in which its economy could be harmed by a trade war with America. The first is by tariffs. Although America has delayed these, they may yet happen. After the talks with Mr Liu, Mr Lighthizer vowed that if China were to fail to change its ways sufficiently, America would use “all of its legal tools”, including tariffs, to protect itself. Mr Trump has previously threatened tariffs on $150bn of imports from China. They would throw sand in the gears of Chinese commerce.