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Scott Sumner: Let’s transfer more US technology to China, not less

In a Bloomberg article last week (“Trump Is Right: China Should Stop Stealing the U.S.’s Best Ideas“), Noah Smith argues that too much US technology is being transferred to China, or being “stolen” by the Chinese. George Mason University economist and blogger Scott Sumner takes the opposite position in a post on Econlog (“Let’s transfer more technology to China“) and explains why it might a global win-win for the global economy, and be in the economic self-interest of the US to transfer more, not less technology to China for reasons including the following:

1. Technology transfer is a huge win for the US, in several different ways. The direct advantage is that the US can then concentrate on what it does best—creating new ideas, and then earning profits from selling those ideas to China. China concentrates on what it does best, which is manufacturing goods like batteries, and uses the revenue to buy more new ideas from the US.  That’s the standard argument for free trade.

2. I think that Noah Smith also underrates the advantage to the US of a rich China. Let’s start with economics. If you look at where American companies earn their biggest profits, it’s highly skewed toward high-income economies.  Thus the Netherlands provides a bigger market for US products than the much more populous Tanzania.  Per capita income is a huge factor in determining the size of the market for the products of companies such as Apple, Disney, GM and Coke.

But that’s not all.  China is not just much bigger than the US, it’s also more culturally homogeneous (at 92% Han).  And that has resulted in a situation where, despite its size, China has a comparative advantage in a fairly small set of sectors—particularly mid-level manufacturing.  In contrast, the US has important advantages in a wide range of sectors, including food, energy, high tech equipment, software, entertainment, consulting, finance, military hardware, commercial airliners, capital goods, and many others.  A market with 1.4 billion affluent Chinese would be a mind-boggling fertile playground for American companies to sell into.  We should welcome a rich China, even if we are evil people who don’t care about the welfare of 1.4 billion fellow human beings.

3. A rich China is also likely to be a more peaceful China. In recent decades, wars are increasingly less likely to be fought in rich areas. Think Eastern vs. Western Europe, or Latin America vs. North America, or Japan vs. South Asia.  WWII convinced rich nations that they had too much to lose from modern weapons.  That doesn’t mean that things can’t swing back the other way (as during 1914-45), and certainly, a rich China would pose a greater military threat to Taiwan.  On balance, however, the evidence points to wealth making the world a more peaceful place, at least in the era since the invention of the atomic bomb.

HT: Don Boudreaux, who has some additional commentary on Scott’s post here on Cafe Hayek.


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