Wednesday, April 18, 2018

The protectionist debate in perspective

As trade wars loom large (or is it one more example of this), it is worth remembering that everyone is equally to blame. Further, the historical trajectory of development of every country is filled with policies that have helped level the playing field for their local industries.

In fact, to the extent that development is a form of arbitrage play, whereby countries seek to exploit their advantages to squeeze their competitiveness compared to competitors, protectionism in some form or other has been always around the corner.

Times has a nice article which captures some of the protectionist policies that China and the US have resorted to. What has China been doing?
To stay in business in China, Apple has had to set up a data center there to store Chinese customers’ personal information. Amazon recently had to sell equipment to its Chinese cloud services partner to comply with new Chinese rules. Facebook and Twitter are blocked in the country; newer American players, such as Snap, are not even trying to enter anymore... China could require that foreign tech companies undergo costly additional tests for new products, or simply make it more difficult to operate in the country... It could also devise new regulatory hoops for foreign companies to jump through. China’s Ministry of Commerce has not yet approved Qualcomm’s proposed, $44 billion purchase of NXP Semiconductors, a Dutch chip maker. The deal, more than a year in the making, needs a signoff from Chinese antitrust authorities because the two companies count a large number of electronics makers in China as customers...
A Communist Party-linked newsmagazine singled out the American companies that it said had penetrated most deeply into China’s information infrastructure. The “Eight Guardian Warriors,” as they were called — Apple, Cisco, Google, IBM, Intel, Microsoft, Oracle and Qualcomm — had been able to “drive right into China,” the article said, whereas Huawei and another Chinese equipment maker, ZTE, had been kept out of the United States... Beijing banned government offices from installing the most recent version of Microsoft Windows, and antitrust investigators raided Microsoft’s offices. Cisco, Apple and Intel products were removed from state lists that officials use as guides when buying equipment. Qualcomm got slapped with a $975 million fine for anticompetitive behavior... Cisco partnered with a Chinese firm to sell networking systems. Microsoft, in conjunction with a state company closely tied to the Chinese military, developed a version of Windows more suitable for China’s government. Advanced Micro Devices, Intel and Qualcomm began working with Chinese organizations in microchips, which China imports in huge quantities to put into smartphones, computers and other electronics.
What has the US been doing?
In the United States, regulators have repeatedly thwarted attempts by Chinese tech groups to acquire American firms. And espionage concerns have for years kept Huawei — one of the world’s biggest suppliers of telecom gear, and a powerhouse of China’s tech scene — largely out of the American market... Mr. Trump recently blocked a hostile bid by Broadcom to buy Qualcomm. He did so not because the bidder was Chinese — Broadcom is headquartered in Singapore — but because the administration said the deal would weaken Qualcomm, leaving Huawei with a stronger hand to shape 5G, or fifth-generation mobile technology... Chinese attempts to scoop up foreign chip makers mostly have not worked out. State-owned Tsinghua Unigroup tried to buy Micron Technology, a memory chip maker based in Idaho, for $23 billion in 2015, but regulatory worries scuttled the deal. The Trump administration last year blocked a China-backed investor from buying Lattice Semiconductor, an Oregon-based manufacturer. And regulatory concerns scotched a Chinese investment group’s plan to buy Xcerra, even though the Massachusetts-based company makes chip-testing equipment and not chips themselves.
These restrictions have all along been imposed, albeit silently, without high-profile twitter rants. Chinese, in particular have never shied away from aggressive use of industrial policy to tilt the playing field for its businesses. 

Traditionally India has been on the defensive with respect to protectionist allegations on local content requirements, public procurements, food subsidy, and so on. These are perfectly legitimate policies which every developed country of note have pursued at their respective development stages. It therefore need not be defensive on these perfectly justifiable policy decisions. However, it needs to cautious in stretching this too far and falling back to a bygone era by introducing import restrictions and raising tariffs on a broad cross-section of goods.

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