New Kid on the Industrial Block
Some significant changes are taking place in our industrial world that require your attention.
China has continued to modify its industrialization goals and methods, especially affecting intellectual property and its role in its policies and practices. These topics are certain to impact U.S. industry, more so in the next few years than the annoyances caused by technology thefts of the last few decades. These items were the subject of an August 2017 report by U.S. Department of Commerce (DOC).
For example, in mid-September Hitachi Metals filed a U.S. Trade Commission complaint about Chinese manufacturers’ theft of process secrets for making amorphous steel ribbons. Such thefts cost the U.S. economy about $600 billion annually, with China the top culprit. Section 301 of the 1974 Trade Act allows the President to impose tariffs and quotas on foreign goods to protect U.S. companies from unfair trade practices that can result. But what of the fact that the target of the theft, though properly licensed by the U.S. intellectual-property owner, was a foreign-owned firm?
The U.S. has continued to treat China as a developing nation in this sort of industrial espionage, pirating, infringement and undercutting of innovation across the industrial board, which now includes the U.S. defense sector. It cannot be ignored that China has stolen three-quarters of the software used in its industry and often asks the offended industry to excuse transgressions as retribution for the prior and war-torn “century of humiliation” before it has become the world’s second largest global economy.
While the modern People’s Republic of China (PRC) was founded in 1949, it is now defining itself to become a “powerhouse” by 2020 and global leader by 2050 in a new document, “The National Medium- and Long-Term Plan for the Development of Science and Technology,” according to the DOC report. It states that “indigenous innovative industrial policies are headed toward triggering contentious trade disputes and inflamed political rhetoric” and that “policies appear to signal that the pretense of goodwill is gone.” It seems that global markets will be increasingly distorted by this newly defined industrial policy of the PRC.
PRC leadership coalesced around President Xi Jinping in late October, making him the most powerful communist leader since Mao, capable of making policy and personnel choices virtually uncontested. Communist Party leadership was revamped to endorse the revival of autocratic rule, according to an Oct. 26, 2017, Wall Street Journal analysis “with no likely successor.” By the time you read this in November, Secretary of State Rex Tillerson and the President’s visits and meetings with Jinping will be completed, and the U.S. and industrial world can expect a “changed environment.” Here is a look at what and where the big picture seems to be headed for typical reader companies.
A DOC International Trade Administration (ITA) report from mid-2017 commented that, while slightly declining for three years, the U.S. is still the major global supplier of manufacturing technology products, exporting about $8.1 billion in 2016. Machine-tool consumption (which includes machines and tools for cutting, milling, grinding, punching, bending, welding and soldering equipment; plastics and rubber manufacturing equipment; industrial molds for casting/forming/injection; and additive-manufacturing devices) in China was close to $32 billion.
U.S. competitors in South Korea and Japan, for example, often had a bigger market share in China than the U.S., but the high-end industrial technology markets (automotive and aerospace) were dominated by the U.S. The largest end-use sector in China is automotive (vehicles and parts), and its estimated value is between $1.2 and $2 trillion annually. China and Japan together make 28% of all automotive production. Civil aircraft is another major end-use sector, plus defense, upstream oil-and-gas production, and a plethora of consumer durable goods, in this order, accounting for the overwhelming bulk of machinery and tool consumption. Of the 20 largest machine-tool producers in the world, 10 are incorporated in the Asia-Pacific region (seven in Japan, two in China and one in South Korea).
What this all means is that China is the big dog in the immediate future, with the U.S., Japan and South Korea in the process of being cut out of play. Just to give you a heads-up … even though you probably knew it was coming.