US-China Trade war on IPR Protection

If the ongoing trade negotiations between China and the United States don’t look like a “trade war”, they can certainly be interpreted to be the events leading up to one. At this point, the White House appears to have drawn the forward edge of the battle area. However, there seems to be a lack of consensus within the Trump administration as to the most effective approach to the desired outcome. There are other factors Trump should consider regarding China’s intellectual property infringements.

Calculating the value of intellectual property is difficult. One way is to estimate what stolen IP would fetch on the market if offered for sale or licensing. Companies can value their intellectual property by estimating the income it produces or is expected to produce. The most common error is to value IP at what was paid to develop it. The real value (and hence the cost of IP theft) is how much a product made with the IP will fetch on the market. Similarly, if I steal IP and can’t figure out how to make a product with it, the loss from the theft is zero. Stolen IP does not mean that the victim company has lost the ability to make products. since China flouts its World Trade Organization commitments and hobbles foreign competition. It has created a protected Chinese market, provides subsidies for foreign sales, and imposes non tariff  barriers to hamper Western companies. Subsidized Chinese companies operating from a closed domestic market and selling to an open international market have an immense advantage, and this is a logical strategy.

China is not the first nation guilty of such infringements. Nor will it be the last. Historically, the velocity and trajectory of a country’s intellectual property laws – as well as its respect and observance for other nations’ – will be based on its level of economic development, and how it views the furtherance of its economic interests in relation to intellectual property rights. Early America not only stole British designs, but also smuggled in skilled British craftsmen. Having fought so hard for their independence, Americans believed that the British intellectual property regime was simply a “pseudo-colonial ploy to force the United States to serve as a ready source of raw materials and as a captive market for low-end manufactures”, as one Foreign Policy commentator puts it.

There is no question that the US should challenge China on its protection of intellectual property rights. However, rather than using a blunt instrument like tariffs, Trump would be more effective coordinating with US friends and allies to apply unified pressure on Beijing.

Source: South China Morning Post

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