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The US and China—more alike than you think

Summary:
Here’s the Financial Times: Caught in the middle is Silicon Valley. Many US technology companies are concerned that China is using unfair and even illicit tactics to get ahead. But there are also rampant fears that the Trump administration’s approach could backfire. When the export controls notice was released, US technology lobbyists in Washington were at pains to explain that they were at risk of losing access to a big market for their new products, and of losing the ability to share information with Chinese researchers, which could help them develop more cutting-edge products. Many policy analysts agree that the US may be in danger of going too far. “It is fair and appropriate for countries to defend their economic crown jewels from foreign exploitation or

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Here’s the Financial Times:

Caught in the middle is Silicon Valley. Many US technology companies are concerned that China is using unfair and even illicit tactics to get ahead. But there are also rampant fears that the Trump administration’s approach could backfire. When the export controls notice was released, US technology lobbyists in Washington were at pains to explain that they were at risk of losing access to a big market for their new products, and of losing the ability to share information with Chinese researchers, which could help them develop more cutting-edge products. Many policy analysts agree that the US may be in danger of going too far.

“It is fair and appropriate for countries to defend their economic crown jewels from foreign exploitation or infringement,” wrote Ryan Hass and Zach Balin of the Brookings Institution in a report this month. But the US needed “to avoid inflicting self-harm”. The “big picture”, they added, was one in which both the US and China were increasing the distance between themselves and the rest of the world on innovation, partly by feeding off each other. (emphasis added)

In some respects (including certain cultural traits such as embracing creative destruction), the US has a more in common with China than it does with Japan or Europe. Consider the following list of the world’s top 20 internet companies.

The US and China—more alike than you think

In fairness, that list does not include other forms of “tech”, such as biotech or hardware producers like Samsung.  Nonetheless, it’s surprising the extent to which the global internet industry is dominated by firms from America and China (a developing country with a per capita income slightly below that of Mexico.)  Where are Europe and Japan?

I doubt whether the current US trade war with China will have much long run impact—Trump has already shown himself to be a rather ineffective negotiator.  Rather than slow the rise of China, an all out trade war would be more likely to help Europe and Japan catch up to the US.

PS.  When I first met my wife she told me that she thought the US was trying to prevent the rise of China.  I told her that she was wrong.  Recently I admitted to her that she’d been right and I was wrong.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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