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U.S.-China trade deal: More silver linings for the innovation sector

November 19, 2014

In our last post on the twin U.S.-China deals , we talked about how the carbon reduction targets would shape the innovation economy. But the trade component of the deal is nearly as important to business innovation.

The historic reductions and eliminations of global trade tariffs between the world’s two largest economies can also play a major role in supporting carbon reductions. In addition, at least theoretically as the deals play out, a tariff-busting agreement would also help with technology and skill-set exchange for an innovation sector thirsty for more ideas, collaboration and growth.

The impetus for the trade deal is reportedly the Information Technology Agreement (ITA) created in 1996 during the World Trade Organization’s Singapore Ministerial Conference. While the ITA was attempting to stay ahead of the curve on rapid developments in technology, geopolitical tensions and unforeseen conflicts (from elections to wars to nation-state saber rattling) have delayed the implementation of a larger effort.

Despite that, the current ITA supposedly cut nearly $2 trillion in import tariffs or duties in 2013. The newly improved ITA would end up expanding the number of products covered under the agreement to an additional 200. If it’s finalized, the WTO projects an enhanced ITA should create about $800 billion to $1.4 trillion in additional annual trade. 

The more obvious silver lining in this deal is that it paves the way for an increased and amicable exchange of technology, talent and ideas sans the constant geopolitical friction, cyber warfare and battling over intellectual property thefts. Gartner already predicted over the summer, “China, buoyed by deep resources, increasingly respected brands and strong original design manufacturer (ODM) suppliers with headquarters in Taiwan and electronics manufacturing service in China, and increasing anti-U.S. sentiment, will increase its share of the DC infrastructure market by two percentage points by the end of 2017, at the expense of Western companies.” This latest agreement possibly makes that approach a little less confrontational (less economic warfare is always a good thing).

Making certain technologies available to the Chinese market could also potentially eliminate a need for Chinese hackers to steal U.S. technology they would otherwise have limited access to. On the other side of the Pacific, U.S. firms in the innovation sector can use the agreement as another channel to farm Chinese technology talent, thereby circumventing some of immigration reform negotiations currently stalled in Washington. 

Both countries also find ways to invest in and profit from each other’s marketplaces. Each marketplace is eyeing the other. Thus, U.S. firms eager to grow more business in the Asian market may now experience easier entry in terms of talent acquisition and business investments. Service providers that have already been making a play for the Asian market—and more aggressively the larger Chinese market—are in a good position to not only access mature Chinese technology talent, but to also provide expertise to a massive Chinese innovation sector that’s still evolving.   

Charles Ellison is a senior analyst relations strategist for TEKsystems. He keeps close tabs on changes and public policy shaping the innovation space. He is also a former congressional staffer, senior aide to state and local elected officials and an expert advocacy strategist. You can reach him with questions and comments @twoARguys via Twitter.

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