As a “Never Trump” person, I have low regard for the current president of our country. Nevertheless, in my view he is sometimes right on specific policies. One of them is trade with China.
President Trump is currently taking strong action against the unfair trading practices of China. For years, China has gotten away with the theft of intellectual property — that is the use of patents, trade secrets, trademarks, and copyrights without permission — through corporate espionage and cyberattacks.
China has forced technology transfers by compelling companies investing in its country to provide intellectual property details and licenses. China has undercut competition by subsidizing export products.
The World Trade Organization does not provide an effective remedy. For example, resolving an issue can take 13 years or more.
According to the Brookings Institute, “While President Xi Jinping continually affirms China’s commitment to the multilateral rules-based trading framework, China continues to renege on its WTO commitments.”
China’s unfair trading practices have had a widespread impact: A recent CNBC poll finds that one in five corporations say China has stolen their intellectual property within the last year.
The Harvard Business Review explained how damaging this is: “Intellectual Property theft … may seem dry to many. But it represents big money. Intangible assets, which include IP, make up 80% of the value of S&P 500 companies …”
The dollar cost of China’s illicit practices is staggering. According to Fortune magazine, “IP theft may not seem the same as taking physical property, but it represents either a loss of opportunity or of competitive advantage that reduces the money a company could have made. The U.S. Trade Representative has estimated the annual losses to China at between $225 billion and $600 billion …”
China’s trade policies have hit home in Massachusetts.
American Superconductor is headquartered in Massachusetts. It had developed advanced computer software that regulates the flow of electricity from wind turbines. According to NBC News, Sinovel, a company partially owned by the Chinese government, “offered big money and access to women to entice an engineer … to launch a cyber raid on his employer, stealing sensitive computer codes.”
“They were out to kill my company,” said Daniel McGahn, American Superconductor CEO. “We thought we were playing by the Chinese rules. We didn’t anticipate outright theft as part of their business model.”
The cyber theft and non-payment for goods already ordered by Sinovel devastated American Superconductor’s business, forcing the company to lay off half of its workforce of 900 employees.
It is not just one company. The Boston Business Journal reported that “Boston is a target-rich environment for anyone who’s interested in stealing intellectual property, according to John Demers, assistant attorney general for national security at the U.S. Department of Justice. Both schools and tech companies are targets of the theft.”
Demers added: “ … 90 percent of our cases involving espionage, economic espionage, involve China, and 65 percent of our trade secrets cases involve Chinese companies or Chinese nationals.”
Trump’s China trade policies have some support beyond the Republican Party.
In May of this year, CNBC reported that “Senate Minority Leader Chuck Schumer tells President Donald Trump to ‘hang tough’ after the president threatens more tariffs on Chinese goods.”
AFL-CIO President Richard Trumka issued the following statement in March 2018:
“For years, China has employed a variety of strategies to steal our intellectual property and bully its way into acquiring critical U.S. advances in technology. Discussions and strongly worded letters have not stopped the IP theft or unfair tactics. Tariffs, investment restrictions and a WTO case might. Tariffs aren’t an end goal, but an important tool to end trade practices that kill American jobs and drive down American pay.”
In a trade war there will be casualties. Businesses that currently rely on Chinese inputs will find their supply chain impacted. Some businesses will lose export revenue. Since a tariff is paid by the importer, at least some of that cost will be passed on to consumers. According to the Federal Reserve Bank of New York, the total annual cost of the tariff/retaliatory tariff war to the typical household could be as high as $831.
In my view, that is a cost we must be willing to bear. Even more costly than a trade war is not fighting to protect your legitimate economic rights rights.
At the very end of June, Trump and President Xi Jinping of China are scheduled to meet at the G20 summit. As this column is being written it is too early to know what the outcome of that meeting will be. My hope is that an agreement will be reached. International trade can be beneficial to all the participating countries but all of those countries have to play by the rules.
Richard Fein writes about national and international issues. He has an independent and sometimes controversial perspective. He holds master’s degrees in political science and economics. Nine of Richard’s books on employment topics have been published.