Trade war is about reshaping industrial chain

Note: US President Donald Trump's "Make America Great Again" policy has resulted in the reconstruction of the global industrial chain. What Washington pursues is not just reducing its dependence on Chinese products, but keeping a tight grip on its leading position in the industrial chain. This will have a major impact on the development of China's manufacturing industry, which is the bedrock of the nation's current as well as future development. What should China do next? Ding Gang, a senior fellow at Chongyang Institute for Financial Studies at Renmin University of China shared his views on this issue with Global Times in his article Trade war is about reshaping industrial chain.

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The trade war launched by the US has exposed China's weak link. It has lacked the advanced technology to help gain a firm foothold at the high-end of the global industrial chain, and more importantly it doesn't have the capacity to shape the chain.

US President Donald Trump's "Make America Great Again" policy has resulted in the reconstruction of the global industrial chain. What Washington pursues is not just reducing its dependence on Chinese products, but keeping a tight grip on its leading position in the industrial chain.

This will have a major impact on the development of China's manufacturing industry, which is the bedrock of the nation's current as well as future development.

Two advantages have been prominent in China's industrialization process over the 40 years of reform and opening-up. First, China has built the world's most complete manufacturing system. Second, Chinese products form the main component of the middle- and low-end of the global industrial chain.

The integrity of the Chinese industrial chain is unique in the globe. Take Apple, 83 of its over 200 suppliers worldwide are located in China where almost all of the American IT behemoth's assembly work is carried out.

China has built its advantages mainly through its own efforts and in the process has benefited from globalization. Yet to a large extent, it is under the thumb of the US. On the one hand, China's manufacturing industry relies on US consumption. On the other, China obtains funds for developing its manufacturing from the Wall Street-centered global capital transfer mechanism.

Many people believe that the US is taking control of the high-end of the industrial chain through its high-tech advantage. That is only one side of the story. The truth is that Washington is dominating global trade and the industrial chain through its consumption power and financial strength.

Of course, the US will not easily allow China to move up to the high-end of the industrial chain. Nor will Washington be willing to let China become the dominant force in the low- and middle-end.

When some Americans wear shirts made in China, it is only a trade issue. When all Americans sport such shirts, it is a strategic issue.

In his book Who Are We: The Challenges to America's National Identity, US political scientist Samuel P. Huntington noted that the Stars and Stripes "is a more central symbol of national identity for Americans than their flags are for peoples of other nations." After the September 11 attacks, many Americans waved national flags to show their patriotism. What Huntington failed to mention is that almost all their flags are made in China.

When the US only needs to buy some products from China, it treats the country as a supplier of inexpensive goods. But when everything it buys is fully or at least partly made in China, the US would feel that it can hardly survive without China.

Since Beijing joined the WTO, Washington started pondering on ways to reduce its dependence on Chinese manufacturing. In previous years, it was concerned about reliance on certain necessities made in China. But lately, Americans are worried that the US economy is increasingly leaning on Chinese products.

Due to Trump's policies, the year 2018 may herald the beginning of global industrial chain reshaping. The part of the global supply chain which meant to export to the US will change. The reliance of US industrial chain on China will decrease. China must be more proactive in considering how to restructure the industrial chain, instead of only focusing on how to occupy the chain.

The Belt and Road initiative is more of a logistics chain and needs to develop into an industrial chain. Chinese manufacturing needs to go abroad and realize global distribution. Meanwhile, Beijing needs to provide better tax incentives and other sops to create conditions for remaking the industrial chain through our manufacturing industry. At this stage, expanding consumption should not be at the expense of manufacturing.