At the G20 meeting held in Buenos Aires, Argentina held from November 30 to December 1, US President Donald Trump and Chinese President Xi Jinping met to discuss two serious problems that have caused rising tensions between their two countries: China’s role in the US trade deficit and the loss of American intellectual property (IP) and technology.
President Xi promised to buy more US products. He even offered a figure: more than a trillion dollars worth. He also pledged to reduce tariffs on US automobiles and other products to help reduce the US trade deficit with China.
The two presidents seemed sincere in dealing with the problems and restoring workable and friendly US-China relations. Reporters said they declared a “cease fire” and will endeavor to work things out in a designated period of 90 days.
That timetable seems critical as at the end of the period China will convene its National People’s Congress and President Trump will again apply the tariffs that he has put on hold if the two issues are not resolved.
Since more specifics were cited about the trade deficit and actions were taken forthwith, the IP and technology issue seems be the big obstacle to overcome. Thus, the US imputations on this matter provoke questions that need answers.
Is it true China is stealing American IP and technology?
Almost all on the American side say yes, of course, it is. Bolstering that view, legal cases have been filed and charges answered. There have been indictments and even extraditions of some people deemed guilty.
President Xi has cited US “reasonable concerns.” In a speech in 2017 he declared there was a need to do something and subsequently said there would be a “heavy price” to pay for violators. He later mentioned 38 punishments and suggested China’s controversial (in the West) social credit system would play a part. He has repeated this since the G20 meeting.
On the other hand, many other Chinese leaders and the Chinese media quite consistently deny the allegations. Both have a quite different perception of what is going on. Also, there is a problem of definitions. Thus, it is uncertain what will happen going forward.
In any case President Trump believes the theft charges are true. Furthermore, he has connected them to the US trade deficit with China, the loss of American jobs, and his promise to “make America great again.” Not only is China getting US technology in surreptitious ways, he says, it is making products derived from that and is selling them to US consumers.
The issue has salience with Democrats who (and this is very unusual) agree with President Trump. Democratic Senate Leader Chuck Schumer said a few weeks ago that he wasn’t in sync with Trump on anything but does support his punitive tariffs on China. Other Democrat leaders made similar statements.
Thus, some observers think the issue may soon reach a “critical mass” and will precipitate a trade war.
What is the backdrop?
Nations have long pinched other countries’ IP and technology — the United States included. In fact, the US began more than two centuries ago purloining British know-how in textile machinery, thereby threatening the UK’s biggest export industry while building one in the US.
It grew from there. One of Alexander Hamilton’s deputies even published a system of bounties to attract sellers of trade secrets. At nearly the same time, the US Congress passed a law to restrict registering patents in the US to American citizens in order to shield the US from this practice.
Anyway, Americans went on to grab much more than blueprints to build better textile machines. Basic research, patents, production techniques, and much more became targets. This went so far that foreign technology became a boon to the American industrial revolution and to the fast-growing US economy in the 19th century and beyond.
During World War II, American attitudes, and policies, about embezzling others’ technology made a volte-face. The idea that technology should be free flowing, which many scientists and globalists of the time advocated, was nixed. It had to be protected. The case most cited was the work on the atomic bomb. The US didn’t want others to obtain this fearsome weapon.
After the war, the practice of classifying weapons research was kept intact. The Cold War provided the justification. Further, this policy was extended into other areas than those related to weapons development.
Meanwhile, the United States became the world’s leader in almost all realms of scientific research. Americans didn’t look abroad much to steal technology. Rather they had to fret about others stealing theirs.
However, except for weapons research, for some time America losing its IP and technology to others was not a big deal since the US was able to keep ahead of all competitors. Also, it didn’t matter when it involved small countries that did not challenge America’s world power status. So, a host of countries were allowed to poach American technology.
But recently it has become a serious matter because of the realization this affects the trade balance, American jobs, and the US debt. Equally important, America’s high-tech losses — not just in military technology — are now linked to the contest for world power status.
In the past, China didn’t enter the discussions. But that changed; in fact, China has become a challenge of a different order. It is now the world’s foremost economic power if that is measured by purchasing power or if one considers its number one ranking in the world in manufacturing and trade.
The question then arose: Should China be singled out for condemnation simply because of its size? That is unfair, isn’t it? No, said most US observers. When global power status is at stake, the world is not fair.
Donald Trump is a transactional president. China has suffered as a result of the disputes and seems willing to make a broad or combined deal. They can and need to negotiate.
Hence China’s “Made in China 2025” project announced in 2015, after a short delay, became a kind of “Sputnik moment” for the United States. China’s leaders envisioned China becoming the world’s leader in high-tech manufacturing, advanced research, and much more, and it set forth plans to accomplish this, including getting new technology wherever and however it could (though it had been doing this for some time).
America reacted. In 2017 the Pentagon warned that state-led Chinese investment in US firms working on facial recognition, 3-D printing, virtual reality systems, and more blurred the lines between civilian and military technologies and was a danger to America. US intelligence agencies subsequently declared China’s theft of intellectual property and its targeting certain US firms for acquisition to be an “existential threat.”
How much does China’s seizing American intellectual property and technology cost the United States?
According to President Trump it amounts to hundreds of billions of dollars. Due to its magnitude as well as its now perceived serious negative impact on the US economy, Trump linked it to the trade deficit problem. Thus, in March he threatened to put tariffs on at least $50 billion of Chinese imports into the US and then did so. He subsequently added $200 billion and said there was another $267 billion “to go.”
The Commission on the Theft of American Intellectual Property confirmed President Trump’s estimates, reporting that the losses to the US were between $180 billion and $540 billion per year, adding that “China accounts for most of that.” But the gap between the low number and high figure was big and the wording “most of that” was vague.
The United States Trade Representative then stated that “Chinese theft of American IP” costs between $225 and 600 billion annually. Again, the span of the figures was big, and it was not clear why this has happened or who pays these costs.
Anyway, these numbers are much larger than previous estimates. In 2011, the US Trade Commission reported that in 2009 US firms lost $48 billion due to “Chinese infringements.” Apparently, the discrepancy is explained by President Obama and previous presidents not wanting to draw attention to the issue. Or China’s acquisitions grew at almost warp speed.
What exactly is China doing?
The Chinese government requires foreign companies — such as those that have new energy vehicle technology — to share their technology. It also puts contractual restrictions on many foreign companies with business connections in China.
China also obtains US technology through cyber intrusions into US government and private company computers, in other words via hacking. State-owned companies, private firms, and individuals all do this. The proportion of each, though, is not clear.
China has and uses many other ways to acquire US know-how. Buying US companies is one of them.
Yet much of China obtaining US IP and technology comes from simply going through published articles or other information that can be found in libraries and online. America’s freedom of the press and its generally free flow of research data abet China’s efforts.
Also helping China are 100,000 Chinese students (mostly in the sciences) studying in the United States. They learn from taking courses and working in the US after they graduate. If they return to China, they often work for Chinese firms or the government that seek new IP and technology.
Last but far from the least, a whole lot of China getting technology it wants comes from Chinese companies’ deals with American companies whereby the latter relinquish their trade secrets in return for access to China’s huge (the largest in the world) market. This is done through simple negotiations, taking advantage of American companies’ desire for large short-term profits.
What are the solutions? And what aren’t?
First, what are not good remedies? Cutting the number of Chinese students in the United States is not a good idea. Their presence advertises the quality of American education and the advantages of the US free market system, while they enrich the learning experience of other students. They also help the US balance of payments.
The US should not cut the number of joint ventures or Chinese companies investing in US companies, except when these companies have contracts with the government that involve defense secrets. Joint ventures and foreign investment bring ideas and technology to the US and improve US companies. On the other hand, some new restrictions are certainly in order and the process must be made to work both ways.
President Trump should pressure US companies not to give away their technology in return for access to the Chinese market. It will be difficult to stop this given the relationship between government and companies in the US. But making an issue of it may reduce it.
The Trump administration must take measures to counter cyber attacks and hacking, no matter where this comes from, and whether a government is involved. It is hard to discern if technology theft comes from an individual hacker or whether a foreign intelligence service is involved and often what countries are guilty. Anyway, a much higher level of vigilance is needed, as are more severe punishments.
President Trump needs to treat the loss of American IP and technology to China as a part of the imbalance of trade issue and persuade and/or pressure China to change its policies so that America does not suffer from either a trade or technology deficit relationship. The reality is it is difficult to measure the scope or value of technology losses, or who exactly is responsible; thus, it will simplify matters to lump the problem of technology theft and the trade deficit together.
The president also has to ensure the animus toward China espoused by the mainstream media, Hollywood, and academe in the US, which all hate China intensely (because it threatens the liberal world order and embarrasses the US left with charges of racism in college and university admissions) does not result in their gaining undue influence over US-China negotiations.
Negotiations can and should solve the two problems. Donald Trump is a transactional president. China has suffered as a result of the disputes and seems willing to make a broad or combined deal. They can and need to negotiate.
The US should prepare to steal (or otherwise acquire) Chinese IP and technology. China is now the leading nation in the world in registering patents and producing scientific papers. It is putting vastly more money into research in robotics, quantum computers, and artificial intelligence, three of the world’s most cutting-edge technologies and three realms that will decide future national power capabilities.
Former Secretary of the Treasury Larry Summers advises that most of China’s recent breakthroughs in technology are not the result of theft from the United States, but rather stem from China’s “huge investments in basic science and terrific entrepreneurs.”
If that doesn’t characterize the US dispute with China currently over US IP and technology losses, it soon will. In other words, the question will soon see the shoe on the other foot.
Finally, the US and China must realize resolving America’s technology losses and the trade dispute with China are a sine qua non to better US-China relations and are essential to keep the global financial system stable, resolve the problem of nuclear proliferation, deal with the international environment, check terrorism, and much more. Thus, successful negotiations are critical to resolve the two problems at hand.