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China Closing Technology Gap with U.S., Could Have Range of Impacts on U.S. Jobs

Thursday, August 04, 2016
Sandler, Travis & Rosenberg Trade Report

China’s technological development and the resources its government is putting into science and technology have been largely beneficial for U.S. companies to date but could create a competitive challenge for the U.S. in the near future, according to a recent report from the U.S.-China Economic and Security Review Commission. The report identifies the potential impacts of this trend on U.S. employment and recommends certain responses by the U.S. government.

According to the report, China is using an increasing number of top-down, state-directed plans to direct its civilian and defense-related S&T, industrial and energy development efforts, but the success of those plans has been limited due to factors such as weak research and development capabilities, inadequate funding and structural flaws in the S&T management system. As a result, China’s S&T development has thus far been overwhelmingly at the lower end of the imitation-innovation spectrum. This has benefited U.S. producers in a number of industries that are able to supply China’s large market demand for related technologies.

However, Chinese authorities have made advancement to higher-end innovation a top priority in their latest development plans. Toward that end they are drawing up new policies and reforms to incentivize R&D and innovation, such as improving intellectual property protection, tackling industrial monopolies and implementing more supportive fiscal and taxation policies. The report projects that over the next several years U.S. firms will face intensifying competition as China’s domestic industries make technological advances with support from state plans, including with respect to 5G technology, cloud computing, global navigation satellite systems, and integrated circuits. These industries, along with information and communications technology, are also expected to provide the toughest competition for the U.S. over the next decade, while in sectors such as additive manufacturing, advanced robotics, biopharmaceuticals, medical devices, electric vehicles and nanomaterials the impact on U.S. firms from China’s technology advances will be more mixed.

Given these and other noted factors, the report estimates that by 2020 U.S. imports of Chinese manufactured goods could have effects on the U.S. labor market ranging from a best case scenario of 273,100 additional jobs based on increased U.S. exports to a worst case scenario of 431,600 fewer jobs based on growth in Chinese imports. Either outcome would depend on the growth of the Chinese market and the ability of U.S. firms to remain globally competitive and maintain fair market access in China. The most likely development, the report states, is a mixed outcome in which the overall employment impact of U.S. net imports from China is close to zero.

Nevertheless, the report concludes, the U.S. government could take a number of steps to respond to China’s state-directed S&T, energy and industrial development. One is to prioritize key sectors, including advanced materials and sensors, for investment and support, as was done in response to the challenge posed by Japan’s technological competitiveness in the 1980s and 1990s. Others include strengthening U.S. government and private sector information security to better guard against industrial espionage and updating technology transfer restrictions to prioritize technologies likely to provide the greatest battlefield edge in the future.

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