U.S. – China, Not So Much About Avoiding Trade Wars, Rather, How Each Uses Its Intangibles

American and European Union’s (EU) trade negotiators recently arrived in Beijing…for five days of discussions.  With respect to an outcome, businesses and citizens of the affected countries could reasonably assume, from the various prognostications regarding the key issue to be negotiated, is intended to reduce the probability that an aggressive ‘trade war’ would develop between the U.S. and China.

Thomas Friedman writes…in a May 1, 2018, New York Times OpEd, that the meetings sheds more light on the issues in play which are, he says, an effort to redefine the conventional rules which have governed the economic and power relationships between the world’s current superpowers, ala America and China.  More specifically, Friedman suggests, the discussions – negotiations have little, if anything, to do with disagreements about trade per se, between the countries.

Should Friedman’s perspective be the most accurate, which I would discourage any rational person betting against…has relevance to most everyone residing on planet Earth!  That is, the trade discussions are not solely about theft, misappropriation, infringement, or piracy of U.S. company’s intellectual property as numerous ‘echo chambers’ persist in charactering.  https://kpstrat.com/wp-admin/post.php?post=391

During the early – initial era of ‘door opening to trade’…with China, countless U.S.-based (owned) companies eagerly and naively raced to the Shanghai and Beijing airports and scattered about the county to engage in negotiations and seek consummation of trade deals with Chinese firms. Numerous company’s though, experienced revelatory challenges, the most significant being that executing lucrative, long term trade deals with Chinese companies, many would not quite meet the proverbial ‘cake walk’ standard, so many naively imagined.

Unrepentant and embedded theft, infringement, and misappropriation of intellectual property and proprietary business (product, production) processes and know how, i.e. intangible assets…was already thoroughly embedded in Chinese business culture.  But, the Chinese did not view their business culture through the same lens as the west in terms of of intellectual property being privately owned assets.  https://kpstrat.com/wp-admin/post.php?post=1086

Had western business persons only studied – acquired awareness and sensitivity for the Chinese business culture first…untold U.S. and European companies may still be successfully operating there today. And, it wasn’t just an initial round of companies that experienced this awakening to the cultural status quo. Instead, it was a continuous stream of company executives trying to ‘do deals’ with, and in China, many of whom genuinely believed they would achieve success in transactions their predecessors had variously and previously failed.

It seemed few bothered to learn from their predecessors errors…e.g., not recognizing nor respecting (overlooking, dismissing) centuries of Chinese business culture and practice, and the importance – necessity to acquire operational familiarity…

  • through the lens which many Chinese business persons conceive ‘products of one’s intellect’ and,
  • how such culture-based views are institutionalized as business culture and government practice, and,
  • as requisites to doing business in China!

Spend time just ‘listening’ to conversations in airport terminals…of passengers awaiting flights back to ‘the west’, as I have, where stories are freely shared aloud describing various ‘I’ve heard it all before’ challenges associated with trying to successfully conduct business in China.

China’s current and previous ’25-year economic growth plans’ have…to my knowledge, never been state secrets. In fact, they are very much open source which China touts.  Perhaps, as Tom Friedman admirably conveyed in his op-ed referenced above and numerous other pieces, that’s precisely what U.S. business c-suites should be paying more attention.

Understanding (assessing) China’s ’25 year economic growth plans’…combined with a healthy respect for Chinese business culture, could produce lucrative business strategies for western companies.  After all, Ruan Zongze, executive vice president of the Chinese Foreign Ministry’s Research Institute, described these talks as ‘a defining moment for U.S.-China relations…this is about a lot more than trade and tariffs…this is about the future.”

Friedman describes the current talks as…

‘in one corner stands President Trump and his team of China trade hard-liners, whose instincts are basically right, ala, ‘this is a fight worth having now, before it is too late, before China gets too big’, whereas,

‘in the other corner, stands President Xi Jinping of China, whose instinct may also be right, ala ‘this is a fight worth having now, because it is too late — China is just too big.

A bolstering insight to the above ‘corner stands’ is as a Tsinghua University trade expert explained to Friedman…

“no one can contain China anymore…China is confident its one-party system and unified society can take the pain of a trade war far longer than Americans can…and, yes, there is a trade imbalance today because China has been investing in its future, while the Americans have been eating their future”.

Another Chinese economist, who Friedman said had worked in the West, summarized the issues in this manner…

“you (Americans) brought China into the world…but, China has changed…now China is in the world, and it is becoming self-propelled.”

Now those perspectives are worthy of some reflection…but, such reflection, for those who care to do it, and any business – trade decisions that may emerge from these and subsequent (future) talks, should come with an ‘operating manual’ for understanding that today…

  • it is an indisputable economic fact that 80+% of most company’s value, sources of revenue, profitability, competitiveness, and sustainability lie in – emerge directly from intangible (non-physical) assets, not tangible (physical) assets!

So, successful, profitable, and sustainable trade is dependent…on each business recognizing what and how to safeguard their transaction relevant intangible assets for the duration; that’s what matters!

I have been variously (professionally) involved-engaged in…safeguarding IP and their contributory, underlying, and value-add intangible assets, i.e., intellectual and structural capital especially, since the mid-1990’s.  https://kpstrat.com/wp-admin/post.php?post=5969

Michael D. Moberly May 8, 2018 St. Louis [email protected] ‘The Business Intangible Asset Blog’ https://kpstrat.com/blog since May 2006, where one’s attention span, intangible assets, and solutions converge!

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



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