In three past posts, I referred to a semi-international spat that was transpiring over a US “Buy American” policy. Those posts can be viewed respectively here (1, 2, 3). Well, judging from a short article I read today on BusinessWeek.com. These isolationist-type strategies may be spreading. According to the article, China's Commerce Ministry has proposed legislation that will require any government purchases oh high-tech products to include innovation that is “indigenous” to China. In other words, the government is stipulating that Chinese tech companies get priority, by law, for all high-tech government contracts.
In the wake of such a monumental global meltdown, these sorts of policies seem to make sense. If there’s a storm outside, let’s board up the windows, hunker down, and protect what’s ours. Right? Wrong. Globalization has permeated most of the world’s developed countries’ domestic economies to such an extent that “boarding up the windows and doors” will most likely hurt, rather than help domestic recovery.
The Chinese have two good reasons for implementing these policies. For one, it will drive more government business to domestic firms. Secondly, any foreign companies who wish to compete for government contracts would have to transfer intellectual properties to China in order to do so. While these results will most likely help China in the short run, the farther reaching effects could be detrimental to China’s worldwide economic position. Particularly, any number of China’s strategic trading partners could take counter measures to “balance” these laws in other areas of trade. Also, as the global economy recovers it will be difficult for China to regain trade relationships that may be damaged from these measures.
As I said in previous posts about indigenization laws, no one wins in the event of a trade spat. Rather than working together to develop symbiotic trading relationships that make sense for companies from all countries involved, sanctions, tariffs, quotas, and a number of other forms of backlash can throw a wrench in the economic value of trade relationships.
In the wake of such a monumental global meltdown, these sorts of policies seem to make sense. If there’s a storm outside, let’s board up the windows, hunker down, and protect what’s ours. Right? Wrong. Globalization has permeated most of the world’s developed countries’ domestic economies to such an extent that “boarding up the windows and doors” will most likely hurt, rather than help domestic recovery.
The Chinese have two good reasons for implementing these policies. For one, it will drive more government business to domestic firms. Secondly, any foreign companies who wish to compete for government contracts would have to transfer intellectual properties to China in order to do so. While these results will most likely help China in the short run, the farther reaching effects could be detrimental to China’s worldwide economic position. Particularly, any number of China’s strategic trading partners could take counter measures to “balance” these laws in other areas of trade. Also, as the global economy recovers it will be difficult for China to regain trade relationships that may be damaged from these measures.
As I said in previous posts about indigenization laws, no one wins in the event of a trade spat. Rather than working together to develop symbiotic trading relationships that make sense for companies from all countries involved, sanctions, tariffs, quotas, and a number of other forms of backlash can throw a wrench in the economic value of trade relationships.
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