Why and How to Mount a Strong, Trilateral Response to China's Innovation Mercantilism

January 13, 2020

China’s systematic “innovation mercantilism” is a threat not only to the world’s major economies—particularly to the European Union, Japan, and the United States—but also to the very soul of the global trading system. Yet while China has imposed its corrosive and harmful economic and trade policies on the world unilaterally, it would be impossible for any other nation, acting on its own, to mount an effective response. China has proved that it is undeterred by the threat of economic nationalism, even on the part of the United States, just as it is unphased by transactional deals and ad hoc trade disputes with the European Union and Japan at the World Trade Organization (WTO). In fact, the last few years have seen China doubling down rather than reforming as it continues its quest for global dominance across a wide array of advanced industries that, once lost in an affected nation or region, are virtually impossible to resurrect.1 The impact of this “innovation mercantilism 2.0” phase will be more profound compared with China’s earlier focus on low-cost, labor-intensive, manufactured goods. As such, it is time for the European Union, Japan, and the United States to band together in a stronger trilateral framework to address the various ways China rigs, manipulates, and distorts markets.