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The Globe and Mail

How China’s march to robotics will upend global trade

If you are worried about a smart robot from Silicon Valley stealing your job, spare a thought for the Chinese. The biggest market for a new generation of problem-solving, automated, mobile machines is the industrial workshops of China. Hamstrung by labour shortages, wage inflation and domestic currency appreciation, China's manufacturers have been shifting their operations offshore to Indonesia and Vietnam but they are also looking toward California for new solutions.

According to the Wall Street Journal, Foxconn, the Taiwanese company that makes iPhones and iPads for Apple, has sought Google's help in its effort to automate its factories in China where Foxconn employs more than a million people. Last year, Google acquired a clutch of robotics companies and gave Andy Rubin, the man behind Android software, the task of developing an industrial robots division.

According to the Journal, Terry Gou, the chairman of Foxconn owner Hon Hai Precision Industry, met Mr. Rubin last year to discuss how robots could solve Foxconn's manufacturing problems. Mr. Gou wants to double Foxconn's revenues over the next decade to more than $300-billion but that will require a shift away from commodity manufacturing – the lion's share of its revenue is earned by making Apple's consumer gadgetry – to higher-margin businesses involved in software design. Foxconn is reported to be seeking out manufacturing and research facilities in the U.S.

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What lies behind this potential marriage of interest between a giant of software and a colossus of manufacturing is China's emerging competitiveness problem. The increase in value of the yuan against the U.S. dollar has hurt China's traditional export industries, which depend on cost advantage. Likewise, soaring wage rates and a shrinking pool of labour due to China's brutal population control policy are raising the cost of basic manufacturing. The business of cheap assembly, whether machinery or textile, will be snapped up by other countries with large pools of cheap labour, such as India or Indonesia. The question for China is whether it can quickly and smoothly make the transition to high-skilled precision manufacturing and how it will cope with the crisis of deskilling and the emergence of a population of urban unemployed.

For Google and other high-tech companies, the automation of manufacturing, transport and distribution is a huge opportunity, one which offers even bigger prizes than the development of communication tools and toys. Robotics will not stop at displacing assembly line workers – a group of researchers at MIT is developing construction robots, that can co-operatively learn and build, based on observations of the behaviour of termites.

The knowledge to develop these machines and the software to guide them is still mainly to be found in North America, Japan and Europe, the older industrialized countries. It is no surprise that Foxconn is shifting its investment focus to America – nor would it be surprising if the Taiwanese firm found itself in discussions in Japan, the home of robotics and precision manufacturing. There is every reason to believe that the big commercial prize of developing robotics could go to the developed, rather than the emerging markets.

Europeans, North Americans and the Japanese have lived through several periods of industrialization and suffered waves of dislocation and deskilling caused by technological investment and change. This transformation cannot be prevented, nor is it desirable as the benefits of using higher technology have always outweighed, in the longer term, the cost of disruption. The issue is how the cost is alleviated and what level of social solidarity is needed to make the transition beneficial to the many, rather than a few large software companies and their owners.

The democratic institutions that can help societies cope with disruptive technology are far more developed in the old capitalist West than the in the emerging markets. China has shown that it is quite vulnerable to the social unrest that flows from even minor pressures in its employment market, such as headlines about worker suicides, a political embarrassment that Foxconn no doubt hopes it might escape with the introduction of machine workers. China has created a vast pool of urban workers, recently dislocated from rural poverty to a city cash economy – these cannot return to the fields and rising unemployment among the deskilled urban proletariat will quickly provoke crises We are on the cusp of a new wave of industrialization; the question of who designs the machines, where they will be made and to whose financial benefit is still very unclear.

If the cost of a manufacturing robot is primarily its American design and Japanese or German technology, does it make sense to deploy that robot in Guangdong to make a circuit board which is then inserted into a car body in a factory in Michigan? Automation will do more than make workers redundant, it will change the patterns of trade. It will create political tensions and upset power relationships. Those societies that are socially and politically ill-equipped to cope with disruptive change will be the worse for it.

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