President Donald Trump is on the move to punish China for the theft of intellectual property (IP). According to the Commission on the Theft of American Intellectual Property, the theft of IPs costs the U.S. up to $540 billion annually, and China is the one most responsible for it. As a result, the U.S. administration has demanded China reduce its trade deficit to make up for the dollars lost to such theft.
The government is also planning on announcing a large fine on China as a punishment for the theft. The nature of the said fine is still unknown, however, President Trump assures that he is talking about “big damages.” Is this the right approach?
The theft of U.S. IPs by Chinese agencies and its discourse has been ongoing for several years now. However, it continues to be an important issue as the consequences to both China and the U.S. are grave either way.
The theft of IP basically includes stealing of corporate secrets and technical know-how to make counterfeit goods and/or pirated software and technology. With regard to the theft of corporate secrets, it’s a program backed by the Chinese government itself as any company wishing to set up base in China is forced to transfer its technology to local Chinese companies. These local companies are domestic firms that the foreign companies must open joint ventures with in order to enter its business in the nation.
Furthermore, the government also demands companies to submit their source code under the pretext of security checks, and as a result, companies end up revealing their IP. The problem has further elevated as the Chinese government is strategically targeting those companies for a forced IP transfer to aid its “Made in China 2025” mission. To increase its production of electric cars, a 5G network, computer chips, and also dominate artificial intelligence, China needs access to as much industrial and technical knowledge as it can find.
What’s the U.S. going to do about it?
On March 23, 2018, the U.S. requested a consultation with China at the WTO to discuss the allegations made by the U.S. on Chinese discriminatory laws and its impact on American IPs. However, according to Jin Haijun, a professor at Renmin University, it will be difficult for the U.S. to provide actual evidence that China has made the transfer of IPs mandatory as the U.S. allegation largely relies on the research and surveys of industries.
Nevertheless, the WTO is not the sole platform where the U.S. can address the issue. In fact, the U.S. is using its Section 301 investigation, as well, to bring China to task unilaterally. Taking China to task on this specific matter has been a priority for President Trump throughout his presidential campaign and beyond. The 301 investigation is on the nature of China’s trade practices and through the investigation, the U.S. can pressure China to reduce its trade deficit. Consequently, the U.S. administration’s announced tariffs worth $50 billion on Chinese imports on a wide range of products. This figure is based on the loss of corporate earnings as a direct consequence of China’s theft of IPs.
Answering to the tariffs imposed, China also announced retaliatory tariffs on U.S. products specifically related to the agricultural industry. With regard to the 301 investigation, Chinese officials call to take legal action against the U.S. as the U.S. has not taken the proper steps to discuss the specific investigation with China bilaterally at the WTO.
On the flip side, the U.S. administration appears to be leaning more toward leveraging section 301 because the concern is that the WTO has not been able to extend strong punishments to the perpetrators in the past. A unilateral action allows the U.S. to directly address China on the matter. On the other hand, China, too, seems to be taking measured steps against Trump’s announcement of import tariffs. Therefore, if President Trump goes through with ‘big damages,’ the U.S. economy should be prepared to withstand any and all of China’s retaliatory moves. Thus, whether President Trump’s approach is the right one, only time will tell.