President Trump loves talking—especially about China.
China is “ripping us off” on trade was one of his catchphrases on the campaign trail. As such, one might have expected the President to take action against China immediately upon assuming office. But this did not happen. In fact, it was not until August that he authorized Robert Lighthizer, America’s trade representative, to investigate China’s predatory trade regime as it pertains to the theft of American intellectual property (IP).
The delay is unfortunate, but there is still ample time for the President to make good on his campaign promise—and he should. IP theft is a huge problem for three reasons: it costs America enormous sums of money, and it undermines the rule of law, and it endangers our national security.
The first issue is quite simple: Chinese theft costs America money, and lots of it. Chinese companies, the vast majority of whom operate with the blessing of China’s government, steal hundreds of billions of dollars of American IP every year. Although their primary target is technology with potential military applications, they show no reluctance in stealing branded products, software, and entertainment—anything and everything that has a marketable value is up for grabs.
Although tracking the economic value of IP theft difficult, a few recent studies have provided reasonable estimates. According to estimations from William Evanina, the director of the Counterintelligence and Security Center under former President Obama, cyber-espionage alone cost America’s economy $400 billion in 2015. This number was extrapolated from reports from 140 American companies with interests in China. Costly though this is, the real concern is the origin of said cyber-threats. Evanina says that China’s government itself was behind 90% of all attacks—not rogue companies or basement-dwellers. At best this is an example of China’s ‘sharp dealing’ and at worst IP theft of this magnitude is an act of economic warfare.
Evanina’s figure also understates the actual damage of IP theft because companies, because companies, especially publicly traded ones, are likely to mitigate damage estimates to avoid hurting their fragile business relationships with Chinese government officials, or their stock prices. After all, very few investors would be enthused if 20 percent of their profits were stolen by a hostile government. Likewise, the figure only tabulates losses from cyber-threats, and does not include losses from Chinese copycat companies who sell knock-off American products to Chinese consumers.
Another estimate from the Commission on the Theft of American Intellectual Property found that IP theft cost American individuals and businesses approximately $300 billion annually, and that China accounted for “between 50 percent and 80 percent of the problem.” Therefore, Chinese intellectual property theft costs America between $150 billion and $240 billion according to this study. Finally, a report published by the OECD in April, 2016 found that 2.5 percent of all global trade in goods was for counterfeit products, and that 61 percent of said products originated from China. The value of these counterfeits totaled $461 billion annually, and China was responsible for $291 billion of them. Although the fraction of those stolen from America is unknown, it is likely high. And remember, this does not include intangible IP of the sort previously discussed; this only refers to physical products (things like knock-off action figures, fake sneakers, and counterfeit laundry detergent).
All totaled, it is not an understatement to argue that China is likely responsible for half a trillion dollars in IP theft annually. For context, this is almost double the goods trade deficit that America legally runs with China every year.
Looking beyond the almighty dollar: China’s patent disregard for America’s IP rights undermines the rule of law—particularly at the international level. When foreign firms (and countries) see China stealing American IP with impunity, they are likely to learn from their example; theft is profitable if there are no consequences. This is the entire reason why patents, trademarks, and copyrights were invented in the first place, no? America has an obligation to defend its citizen’s property, and this alone is enough to take a hard-line approach with China.
Lastly, this is also a question of national security: many American firms that do business in China make technologically sophisticated products, like computer chips, that have integral military applications—they probably should not be manufactured abroad, least of all in China. Not only does this allow China to reverse-engineer our technology, which improves their military, but it lets them peek behind the curtain, potentially exposing our own technological flaws and weaknesses.
IP theft, as well as a host of other dirty tricks, gives China the upper hand when it comes to trade. President Trump needs to make dealing with the ‘China question’ a priority—not just for our economy, but for the security of our nation.