Tariffs and Curbing China’s Intellectual Property Theft
Intellectual property theft has long been a source of tension between Beijing and the United States. The Trump administration estimated intellectual property theft by China could be as high as $600 million.[1] In an effort to combat China’s predatory practices, President Trump is considering imposing a big “fine” against one of our key trade partners.[2] The proposal comes not long after President Trump announced his controversial tariffs on aluminum and steel—tariffs that divided the president’s own party and advisers.[3] However, the proposed strategy targeted at China and its anticompetitive trade policies has broad support among a number of officials who believe China is cheating in global trade.[4]
This proposal comes pursuant to a 1974 trade law that authorizes an investigation into China’s alleged theft of U.S. intellectual property.[5] The law allows the imposition of tariffs on Chinese goods or other trade sanctions if Chinese practices and policies relating to technology transfer, intellectual property, and innovation are found to be unreasonable, discriminatory, or overly burdensome on United States commerce.[6]
Two years ago, China unveiled an ambitious plan called Made in China 2025, designed to upgrade Chinese industry over the next decade.[7] With the plan, China aims to dominate sectors of the future, including cutting-edge technologies like advanced microchips, artificial intelligence, and electronic cars.[8] However, some policies under Made in China 2025 aggressively require foreign companies to turn over technology and intellectual property, and demand joint venture partners in order for companies to enter the world’s second largest leading economy.[9] Sometimes, the policies even woo foreign giants with money and market access.[10] Many of these practices elude American and global trade rules.[11]
Jeremie Waterman, President of the China Center at the U.S. Chamber of Commerce, said that Made in China 2025 “seems to reject all notions of comparative advantage and future opportunities for high-value-added manufactured exports from the rest of the world to China.”[12] With Made in China 2025, “[t]here’s concern that U.S. firms are transacting away their competitive advantages,” said Greg Levesque, managing director of Washington research firm Pointe Bello, and former executive at the US-China Business Council.[13] Waterman concluded that “[i]f Made in China 2025 achieves its goals, . . . the U.S. and other countries would likely become just commodity exporters to China — selling oil, gas, beef and soybeans.”[14]
Therefore, following Trump’s formal authorization of an investigation into intellectual property theft in August,[15] the White House is now considering imposing a raft of tariffs and other punitive measures on China. The proposal calls for tariffs on a range of Chinese products, restrictions on investment by Chinese companies in the United States, and limits on visas for certain Chinese nationals.[16] The tariffs on at least $30 billion worth of imports would not only target technology products that are often subject to intellectual property theft, but also goods such as clothing.[17]
Although there is wide support for taking action against China’s unfair trade practices, business groups and economists say the measure could be risky. Thomas J. Donohue, President of the U.S. Chamber of Commerce, stated that “[s]imply put, tariffs are damaging taxes on American consumers . . . tariffs of $30 billion a year would wipe out over a third of the savings American families received from the doubling of the standard deduction in tax reform.”[18]
The proposed measures are said to be announced as early as this week.
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