How Chinese Products Went From Cheap and Cheerful to Trade War Weapons

What a difference two decades make

Qing Shan Ding

May 31, 2018

Tensions are escalating between China and the United States over trade. The Chinese government has announced retaliatory measures on a range of U.S. products, including cars and some American agriculture products after the United States listed 1,333 Chinese products to be hit by punitive tariffs of 25 percent.

Yet a trade war does not make economic sense for either side. Bilateral trade between the United States and China was worth about $711 billion in 2017, and Boeing’s single deal with China signed during President Trump’s visit to Beijing in 2016 was worth about $37 billion alone.

The jobs and livelihoods at risk are huge. So why is there no particular desire, especially from the Trump administration, to ease the tension and find a new solution?

There has been much talk about the U.S. trade deficit with China and allegations that China steals U.S. intellectual property. But the answer could lie in U.S. fears of the Chinese government’s “Made in China 2025” initiative and how it signals the growing threat of China as an economic rival. The fact that the Office of the U.S. Trade Representative (USTR) mentioned the Made in China 2025 initiative more than 100 times in a recent investigative report about Chinese trade practices suggests this is the case.

Image problems

Made in China 2025 was launched by the Chinese government in 2015 to upgrade the country’s manufacturing capabilities. It is a plan to transform what China produces from a low-cost, labor-intensive model to advanced and smart manufacturing. Certain key industries such as aerospace, robotics, and high-tech medical equipment have been prioritized. The hope is that China will gradually match developed countries’ manufacturing capabilities and become industry leaders.

A lot of the products from these key industries, such as industrial robots, aviation and aerospace equipment, new energy and power supplies, and advanced rail machinery, were all included in the tariff target list published by the USTR. So it would seem that the current situation is not simply a trade issue aimed to reduce America’s trade deficit with China. Instead, it is likely targeted at the future competition China will pose.

China’s Made in China 2025 strategy makes perfect sense in my field of research, which concerns where products are manufactured and how this effects their popularity in the global marketplace. A strong and positive image of a country can generate what economists call “halo effects” on its products. So, Germany has built a good reputation for its cars and engineering, France and Italy for their wine and fashion, and the United States for its innovative products.

This worldwide reputation brings with it prestige and higher-price premiums. Although there is still debate around whether brand origin could be more important than where a product is produced (Apple, for example, designs its products in the United States but manufactures them in China), there is no doubt that “Made in China” suffers from an image problem.

Chinese products have long been associated with a cheap and cheerful perception that they are not good in terms of quality or ingenuity. The Chinese government has long been aware of this view and keen to change it.

At the turn of the 21st century, China set up a policy called “Going Out” to encourage leading Chinese firms to expand internationally, and acquire new technology and the tools to innovate. The two big examples were IT firm Lenovo’s takeover of IBM’s personal computer division in 2005, and Geely automotive’s purchase of Volvo in 2010. Made in China 2025 serves the same purpose—to boost China’s technology and innovation capabilities and to improve the image of Chinese products.

Impressive growth

There is no doubt that China has come a long way since the 1990s. It has built 22,000 km of advanced high-speed rail network within the last decade, which is more than the rest of the world combined. It is also considered as the global leader in renewable energy and technology, patent filings, commercial drones, industrial robotics, and e-commerce and mobile payments.

Chinese telecommunications company Huawei typifies the transformation of Chinese products in recent years. Within the last decade, Huawei has surpassed Ericsson and Nokia to become the world’s biggest telecom equipment supplier and has just overtaken Apple as the world’s second largest smartphone maker, behind Samsung.

What’s more remarkable about these statistics is that Huawei has transformed itself from a cheap phone maker to an accepted premium brand that can compete with Apple and Samsung. Among its latest releases, the top-of-the-range Huawei P20 Pro will retail for $1,100, and its top-end model Huawei Porsche Design Mate RS will sell for $2,109—even more than the iPhone X.

There is no doubt that some in the United States are uncomfortable with China’s impressive growth and feel threatened by it. It suggests the current trade dispute is not just about imports and exports, but also the reaction of an incumbent superpower feeling the threat of a growing challenger.

This article was originally published on The Conversation. Read the original article.

About The Author

Qing Shan Ding’s picture

Qing Shan Ding

Qing Shan Ding is a consultant and a lecturer in marketing at Huddersfield Business School.