By David Meyer
June 25, 2018

President Donald Trump’s administration is reportedly planning a serious fightback against China’s “Made In China 2025” policy, by blocking some technology exports to the country and stopping Chinese-controlled firms from investing in U.S. technology firms.

According to the Wall Street Journal, the White House’s new measures will be announced this week.

Here’s what you need to know.

What’s Made In China 2025?

It’s a major, government-led push that’s a bit like Germany’s “Industry 4.0” drive, intended to upgrade industry with robotics, AI, new energy technologies and lots of sensor-derived data. In short, it’s a shift from China’s current, labor-intensive model into a more high-tech future model based on automation.

However, the most controversial elements of the Made In China 2025 drive is Beijing’s intention to make China both self-sufficient and the dominant exporting force in these areas. That would severely hurt countries that want to export such technologies to China, to a degree that arguably breaks international trade rules.

How does China hope to achieve this?

Alongside domestic research and development efforts, China is widely believed to be keen on gaining intimate access to foreign technologies, in order to find inspiration for its, ahem, homegrown technology.

There are several ways to do this. One is straight-up commercial espionage. Another is to have Chinese companies—which some believe are all ultimately controlled by Beijing—invest in the foreign firms making this tech. Big examples of Chinese takeovers of U.S. firms include Lenovo buying phone-maker Motorola, Zoomlion Heavy Industry Science buying machinery firm Terex, and Tianjin Tianhai buying Ingram Micro.

And then we have China’s rules on foreign firms accessing its own market. In the automotive sector, for example, overseas manufacturers have to form 50-50 joint ventures with Chinese companies in order to sell there. This gives those local players access to the foreign firms’ intellectual property.

Why hasn’t Trump targeted this behavior before?

He has. Last year, Trump blocked a Chinese-backed investor from picking up Lattice Semiconductor (lscc). And when he unveiled big tariffs on Chinese imports earlier this year, “reciprocity” was the name of the game.

So what’s new?

Firstly, the context has moved on. Trump hit China with his tariffs, and China is predictably reciprocating—as with Europe, also stung by U.S. action on steel and aluminum, the strategy appears to be to unsettle Trump’s blue-collar base with targeted, retaliatory tariffs.

So now the White House is preparing to take things up a notch or two. One element of the new offensive involves “enhanced” export controls, while another would stop companies with at least 25% Chinese ownership (or possibly even less) from buying U.S. firms dealing in “industrially significant technology.” As Chinese investment has already drastically tapered off, it’s the export controls that seem to be worrying U.S. industry.

According to the Journal, the National Security Council is working out recommendations on export blocks involving tech that is relevant to the Made In China 2025 drive, and there’s still a window of opportunity for industry to voice its concerns.

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