Tariff walls won't make West competitive

For much of the modern era, the global economic order followed a familiar pattern: advanced Western economies supplied capital, technology, high-value industries and wealthy consumers, while developing countries supplied raw materials, cheap labor and low-cost manufacturing.

That division is now being rewritten. China has moved from labor-intensive manufacturing into advanced industries, India is expanding its technological and industrial capabilities, and the Association of Southeast Asian Nations economies are becoming manufacturing hubs. Across the developing world, countries want to climb global value chains, develop their own technological capabilities, and retain more of the value their economies create.

Solar panels and electric vehicles are the first signs of a broader redistribution of industrial power. Batteries, artificial intelligence, robotics, biotechnology, advanced machinery and other frontier industries could become the next arenas of competition as emerging economies accumulate skills, capital, engineering expertise and technological capabilities.

The challenge facing the West is therefore much bigger than China. It is a global economy in which industrial and technological capabilities are becoming more widely distributed. Tariffs and export controls may buy time. But they cannot substitute for domestic economic renewal.

For decades, Western products could afford to be expensive because they were perceived to be better. That advantage is narrowing. Emerging-market products now deliver comparable or even superior performance at a substantially lower price. If an emerging-market manufacturer offers comparable technology and reliability, why would one pay 30 or 40 percent more for a Western label? Value for money may matter more than country of origin.

This is where the limitations of protectionism become apparent. Tariffs can protect Western manufacturers at home by making competing imports more expensive. But that protection ends at the border. When a German manufacturer competes with a Chinese company to sell machinery in Indonesia, vehicles in Brazil, or energy equipment in Kenya, there is no Western tariff wall to hide behind. It must compete on price, quality, technology, financing, reliability and service. A tariff wall can defend a home market but cannot follow a company around the world.

Technology restrictions face a similar limitation. Export controls may delay competitors in strategic sectors, but containment cannot permanently substitute for competitiveness.

For decades, the bargain appeared straightforward: the West would invent, design, finance and own the intellectual property, while developing countries would manufacture. Embedded within that arrangement was an assumption that technological leadership would remain concentrated in advanced economies.

That assumption no longer holds. China's rise in electric vehicles and batteries demonstrates how manufacturing capability can evolve into engineering strength and technological leadership. Increasingly capable Chinese open-weight AI models suggest that competitive pressures are extending into frontier digital technologies as well.

The West therefore cannot build its future around the expectation that emerging economies will remain permanently one technological generation behind. It must remain competitive even when others catch up.

Why has it become so expensive to produce in many advanced Western economies? Labor costs matter. But simply demanding lower wages would be neither realistic nor desirable. The deeper question is why workers require such high nominal incomes merely to maintain a middle-class standard of living.

Housing is one reason. When an ordinary home costs $1 million, workers require substantially higher salaries simply to afford rent or a mortgage. Employers then pay more, not necessarily because workers enjoy dramatically better lives, but because maintaining an ordinary middle-class existence has become expensive.

The same logic applies to healthcare, childcare, education, transport, energy, and other essentials.

When life becomes expensive, labor becomes expensive and eventually, the entire economy becomes expensive.

This should force Western policymakers to reconsider what prosperity actually means. Rising salaries, property values, and nominal GDP may look impressive on paper, but households experience prosperity through what their income can actually buy. Governments should therefore pay greater attention to real purchasing power, median disposable income, housing affordability, and the cost of essential goods and services.

If housing, healthcare, energy, transportation, education and childcare become more affordable, workers can enjoy higher real living standards without requiring ever-rising salaries simply to stand still. Lower structural living costs can reduce wage pressure and business costs while simultaneously increasing household purchasing power.

The objective should not be to make workers cheaper by making them poorer. It should be to make prosperity less expensive.

If another country can produce equally good vehicles, solar panels, machines, or electronic products for substantially less, a tariff may buy domestic industry time. But it does not answer why is there a cost gap, and what Western economies must do to close it.

Blaming developing countries for becoming technologically capable won't help. That is precisely what economic development is supposed to achieve. China has moved rapidly up global value chains. India and ASEAN economies are seeking to do the same, and others could follow. Emerging economies will increasingly have sophisticated technology, capital, competitive companies, skilled workers, industrial capabilities, and large consumer markets.

This does not mean Western economies are destined to decline. It means they can no longer take economic leadership for granted. The sustainable response is not to prevent others from rising, but to rebuild competitiveness at home.

There is a third path between making workers poorer and allowing industries to become uncompetitive: higher productivity, lower structural costs, faster innovation and stronger real purchasing power.

In the emerging global economy, the countries best positioned to prosper will not necessarily be those that build the highest tariff walls. They will be those that innovate fastest, produce most efficiently, keep essential costs manageable and deliver the greatest real prosperity to their people. Protectionism may buy time. Competitiveness will determine who uses that time best.

The author is the founding director of the Belt and Road Initiative Sri Lanka.

The views don't necessarily reflect those of China Daily.

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