IP Theft In China: Can It Be Stopped?
On January 17, President Trump said the United States was considering a big “fine” as part of an investigation into China’s alleged theft of intellectual property.[1] In an interview with Reuters, Trump disclosed, “we have a very big intellectual property potential fine going, which is going to come out soon.”[2] Trump said the penalties could be large but did not offer a specific number.[3] This statement indicates that his administration will be taking retaliatory trade action against China.[4]
What, might you ask, is this purported “theft” that China has been engaging in? Chinese companies, with the support of official Chinese policy and often with the participation of Chinese government personnel, are specifically going after the intellectual property of American companies.[5] This supposed intellectual property theft covers a wide range of American industry including counterfeiting American fashion designs, pirating movies and video games, patent infringement, and stealing proprietary technology and software.[6] Chinese companies have allegedly stolen trade secrets from virtually every area of the American economy which has included automobiles, auto tires, aviation, chemicals, consumer electronics, electronic trading, industrial software, biotech, and pharmaceuticals.[7]
Perhaps the most troubling question is, how and why would US companies allow this to happen? It all goes back to policy: China is using IP theft as an industrial strategy.[8] Central to Chinese cybersecurity law is the “secure and controllable” standard, which, for purposes of protecting software and data, forces companies which operate and do business in China to disclose critical intellectual property to the government and additionally, requires that they store data locally.[9] American companies have concluded that being forced to transfer their intellectual property to China is simply the cost of doing business with the world’s now second-largest economy.[10] But, this past summer, the U.S. launched a formal investigation into these alleged actions by China.[11] This investigation began because U.S. businesses say that they lose hundreds of billions of dollars in technology and millions of jobs to Chinese firms which have stolen ideas and software.[12]
Calculating the value of intellectual property can be difficult.[13] “The most accurate measure is to look for competing products. If there aren’t any, the harm to the victim is zero.”[14] However, stolen IP does not mean that the U.S. has lost the ability to make products.[15] Instead, the issue is that it now faces a new competitor.[16] Despite these obstacles in determining loss, Trump administration officials have estimated that theft of intellectual property by China could be as high as $600 billion.[17]
Although Trump was not clear on what he meant by a “fine” against China, the 1974 trade law that authorized an investigation into China’s alleged theft of U.S. intellectual property allows him to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies.[18] Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said the penalties under Section 301 of the Trade Act of 1974 would probably include a package of both tariffs and restrictions on Chinese investment in the United States.[19] While this is all still speculation, throughout Trump’s 2016 election campaign, he routinely threatened to impose a 45 percent across-the-board tariff on Chinese goods as a way to level the playing field for American workers.[20]
Despite all this talk of imposing a fine, Trump said he wants to maintain a good relationship with China, but he also stressed that the country must treat the U.S. fairly.[21] On January 30, in his first State of the Union address, Trump referred to China as a rival, and declared an end to what he called an era of economic surrender.[22] However, he did not mention the country directly when he pledged to protect intellectual property and fight for fair and reciprocal trade.[23] Analysts say there could be a number of reasons why he did not specifically mention China, including expectations that his administration may soon announce even more trade measures.[24] Another possibility is that there are different views on China within the U.S. government and there is no clear path forward.[25] Before assessing whether this will be a strategic, advantageous move for the U.S., we will have to wait to hear what the Trump administration specifically has in mind.
Footnotes
