Clashing Visions: 'Made in China 2025' vs. 'America First Investment'

China’s Two Sessions, conducted from March 5 to 11, highlighted China’s aim to enhance its global economic footprint. President Donald Trump also unveiled his ‘America First Investment Policy’ two weeks earlier to manifest his economic designs and counter ‘Made in China 2025’ policy endorsed in the Two Sessions. This competition between the two opposing policies is expected to catalyze the ongoing trade war between the U.S. and China, resulting in major implications for the global economy including the possibility of global recession.

However, this ambitious policy of President Trump is riddled with paradoxes, including the financial interests of American tech giants. Despite denunciation of the U.S. outbound investment in China, Elon Musk, President Trump’s closest ally in the election campaign and senior advisor to the President on government efficiency, is among the leading investors in China. This reveals the duality in President Trump’s approach, who is fixated on curtailing outbound investment in China while his closest aides continue being the biggest investors in the country. The ‘Gold Card’ Visa Program, President Trump’s attempt at increasing inbound investment, is also being predicted to elevate America’s housing prices. This implies that the focus of President Trump’s ‘America First Investment Policy’ is to compel investors into the U.S. by degrading the business environment in other states through exorbitant tariffs.

The competition between ‘America First Investment Policy’ and ‘Made in China 2025’ is anticipated to greatly impact the economies of the U.S. and China while influencing the global economic milieu. Speculations of another recession are looming in the American financial sector as tariffs and protectionist policies like ‘America First Investment Policy’ aggravate uncertainties among the investors and the masses. The Two Sessions aimed to attract foreign investors, especially in smart manufacturing. The Trump administration, however, might respond with even higher tariffs on Chinese smart manufacturing, compelling China to impose retaliatory tariffs on the U.S..

The recent enforcement of tariffs on Canadian and European steel and aluminum imports can be considered an attempt to redirect investment to the U.S.. The reciprocal European tariffs, however, will intensify America’s trade war with its allies. In this scenario, ‘America First Investment Policy’ appears merely an extension of the broader tariff strategy of President Trump. The policy aims to attract foreign investment from allies, but based on tariffs’ coercion. The investors might feel compelled to redirect their investment to the U.S. to fend off the repercussions of American tariffs. The retaliatory tariffs on the U.S. will additionally impair investors’ interests, who would face insecurity due to ever-increasing turbulence by the states’ economic policies.

The contest between these opposing policies will also exacerbate the race for dominance in smart manufacturing. The contours of both policies emphasize advanced high-end technologies. This showdown between these policies will lead to technological decoupling and attempts to outpace the other by advancing the integration of advanced technologies into production processes and supply chain.

The U.S.-China competition over rare earth metals will also intensify as a result of these competing policies. Rare Earth Metals are essential to advanced manufacturing and defense industries. In the wake of China’s ban on export of several REMs to the U.S. citing their dual-use applications in both civilian and military technologies, the Trump administration is pondering over new sources of REMs. This REMs hunt is noticeably influencing the Trump administration’s foreign policy, including the pressure on Greenland, compelling tactics against Ukraine and growing affinity for Russia, especially after Russia showed willingness for REMs export to the U.S..

The competition between these policies of the U.S. and China is adding to protectionist sentiments, which is plummeting investors’ confidence. The speculations of recession are gaining strength in the U.S., and it may turn into a global recession resulting in grave consequences for the global financial system. In the age of globalization where states’ economies are deeply interconnected, the enforcement of such policies hampers the potential of shared growth and mutual prosperity.

Hamza Zaman is an assistant research associate at the Islamabad Policy Research Institute (IPRI), Islamabad.