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IRG 2-3: The Implications of China’s Move to High-Tech Innovation for U.S. Policy
The economies of the U.S. and China are currently deeply intertwined: innovation, product design, and marketing originate with U.S. (and other foreign) firms; contract manufacturing occurs in China; and final products are sold to U.S. (and other advanced economy) consumers. On the U.S. side, firms benefit from low-cost labor; U.S. consumers benefit from low-cost products (contributing to historically low rates of inflation that partly mitigate sluggish middle class income growth); and U.S. government debt is financed by Chinese purchase of government securities. On the Chinese side, tens of thousands of factories benefit from contract work for U.S. 9and other foreign) firms; hundreds of millions of workers benefit from waged salary, if often under harsh conditions in violation of ILO minimal standards; the Chinese government has accumulated significant foreign reserves (now approaching $1.9 trillion from all sources), which in turn help to finance significant investments in infrastructure; and the Chinese economy continues to grow at 10% annually as a result.
China’s turn to indigenous innovation heralds a major shift in economic strategy, one that will lead to a partial uncoupling from what has thus far been a mutually advantageous relationship with the U.S. and other foreign economies. If China is successful in its efforts, it will in 10-15 years be competing head-on with foreign firms – designing, branding, and marketing its own innovative products to hundreds of millions of Chinese consumers. In other words, one possible future for China will be to become more economically autonomous than it has been thus far. In a paper (and a series of February 2011 presentations in Delhi and Hyderabad, India), we are exploring possible ramifications of these trends, in particular the opportunities for increased scientific collaboration between China and the U.S.