Tariffs and Protectionism, Preludes to Indigenous Innovation

Anyone who has travelled to China, and spent time in one of China’s numerous metropolitan airports, knows…its likely you will observe ‘whispered’ conversations among English speakers. The topic; a seemingly endless array of challenges related to sorting out, what were presumed, perhaps naively, would be a relatively straight-forward and mutually beneficial business transaction, i.e., manufacturing, research, trade, etc. https://kpstrat.com/wp-admin/post.php?post=5213

Too, those familiar with China’s 40+ year old trade policies and practices which largely serve as  preludes to conducting business, ‘outsiders’ are frequently obliged to…

  • relinquish – share their intellectual properties and proprietary intangibles as ‘up front’ requisites to commencing a trade – business relationship…
  • defer to China’s culturally rooted-embedded (government) inclinations to engage in some manner of asset infringement and product ‘copying’…
  • compete with product-service government price supports, all-the-while…
  • be cognizant of China’s population of 1.3+ billion, growing percentages of which should be considered prospective consumers of the products-services emanating from a trade relationship.

An alternative strategy is…of course, increased use – reliance on initiatives to finance ‘indigenous innovation’, which can be a potential strategic upside to the imposition of tariffs, as is seemingly advocated by the current U.S. administration as a recourse to the persistent theft – compromise of IP and other intangible assets, i.e., intellectual, structural, and relationship capital.   https://kpstrat.com/wp-admin/post.php?post=5138

It remains to be seen what the effects (near-long term) may be from last week’s proclamations…by the U.S. imposing product (China) specific tariffs.

However, should the tariffs be significant and applied to multiple sectors – products, and last long enough, its likely they will translate as ‘protectionistic’…it’s plausible…

  • the tariff targeted country, as well as the tariff imposing country,
  • find it in their interests to develop – move toward greater reliance on,
  • consumer awareness of, and market preference for indigenous innovation and production.

Whether either materializes as a ‘good thing’, I suspect not…because, among other reasons, it remains a globally universal economic fact that…

  • 80+% of most company’s value, sources of revenue, sustainability, and competitiveness lie in – emerge directly from intangible assets, particularly, intellectual, structural, and relationship capital, and
  • lucrative – competitive intangible assets are increasingly the outcome – product of collaboration.

To be sure, some product – country specific tariffs are intended to…mitigate particularly egregious trade imbalances, i.e., over-abundance of manufacturing-supply, and/or tactical pricing supports.  In these circumstances, tariffs can be rationalized as transparent necessities to safeguard and provide time and opportunity for indigenous business sectors to re-compete.

But, in an ‘economics 101’ context…if-when the politics of tariffs are left unchecked or outcomes poorly considered from the outset, their outcomes may manifest as ‘the bite becomes far worse domestically than the initial bark’.  So, instead of, in this instance, continually seeking alternate strategies to compete in an irreversibly and globally integrated economy, either country may find itself limping more toward ‘indigenous only’ practices which could fairly rapidly materialize as far stronger adverse effects.

The imposition of tariffs routinely come wrapped in – embedded with…political and/or national security messaging for (a.) the imposing country’s constituents, and the (b.) ‘hope’ they will influence the ‘tariffed’ country to amend whatever trade shenanigans are alleged. But, one reality is, the imposition of tariffs are frequently interpreted as protectionist without much regard how they will variously contribute to stifling collaboration and innovation.

A stronger, but often ‘time sensitive’ sense of indigenousness…is often a by-product to tariff initiated trade practices and policies vs. the ‘give and take’ associated with respectful, multi-lateral negotiations to resolve economic – competitive differences, ala, the World Trade Organization (WTO).

True, tariffs may initially materialize as – be short-lived (expedient) boosts…to domestic manufacturing and R&D, etc., even though either is occurring by discriminating against other, sometimes specific countries – company products, ala the so-called BRIC countries (Brazil, Russia, India, and China).

Of note, in a European Chamber of Commerce survey…conducted in 2012, 22% of the respondents indicated they may shift their investments out of China, citing regulatory barriers to accessing (Chinese) markets. As the business world came to know, the full extent of the survey did not materialize.

If multinationals are passive to these types of mercantilist schemes…which include, among things, requiring…technology transfer, indigenous sourcing, disclosure of proprietary intangibles, etc., as pre-conditions to market access, which, by the way, both ignore and undermine international (WTO) standards, and otherwise restrict any genuine and/or collaborative (free) flow of data and information!

Again, company – country passivity on such matters will…as is patently apparent (pun intended) be interpreted by any offending government as motivation to accelerate and probably expand their anti-competitive practices.

The products of human imagination can, and not-infrequently do…become tomorrow’s reality, perhaps not precisely in their original form, rather some deliberative variation. Thanks, in no small part, to the growing numbers of entrepreneurish – independent-minded creatives globally who may remotely and collaboratively contribute to collectively transfer technology and innovation into desirable, lucrative, and sustainable practicalities.

I experienced a variation of this in mid-October, 1969…while convalescing at the 106th General (Army) Hospital in Japan. I ‘wheeled myself’ to the hospital’s movie theater to watch the film “2001: A Space Odyssey”. Throughout the film, as its followers know well, there were various ‘sci-fi’ types gadgetry (props) used by various characters. On this evening however, my mind failed me. I did not consider – fully grasp how some of the various gadgets used-depicted in the film could conceivably – eventually emerge as practical – common fixtures in people’s pockets and shoulder bags globally.

Most innovation, of course, incurs rigorous and over-the-horizon analysis, field testing, focus groups, and ‘clinical trials’, if relevant…upon which the innovation may merge into the public space. To be sure, along such conventional (often regulatorily mandated) paths, there will be various opinionated, subjective, or unsubstantiated perspectives and ‘forces’ in play which can stifle any innovation’s momentum and introduction. As well, these scenarios can manifest as opportunities for ‘competitors’ (i.e., infringers, counterfeiters, etc.) to introduce substitutes with relatively insignificant alterations to the original innovation but aligned with – supported by different economic schemes.

Insights for this post were gleaned by Michael D. Moberly from a fine article that initially appeared June 16, 2012, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: Protectionism Is Back, penned by Thomas Donahue and Dean Garfield.

Michael D. Moberly March 29, 2018 St. Louis [email protected] ‘Business Intangible Asset Blog’ since May 2006 https://kpstrat.com/blog where one’s attention span, intangible assets, and solutions converge.  

Readers are invited to explore other products, papers, blog posts, and books I have published at https://kpstrat.com/blog/paper

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