Trump To Toughen-Up On China’s Intellectual Property Theft, Which Costs America Up To $500 Billion Annually

by Spencer P Morrison, NEE

chinese counterfeit products that result from the theft of American intellectual property are a disaster for americas economy

Finally we have the beginnings of the trade reform with China that President Trump promised on the campaign trail.

On Monday, August 14 President Trump took his first baby-step to deal with the ‘China problem’, by authorizing an inquiry to look into the theft of American intellectual property by China’s corrupt government.

The presidential memorandum, which could take over one year to complete, will order the US Trade Representative, Robert Lighthizer, to investigate China’s trade policies on intellectual property, and determine whether or not they are hurting American businesses and jobs, as the Trump administration claims.

This is a good step: while I have been relatively pleased with the Trump administration’s activity when it comes to immigration reform—particularly illegal immigration—I have been flummoxed at his lethargy on tackling the other principle prong of his economic platform.

Trump promised immigration reform, he is delivering.  But he also promised trade reform, and there has been nothing substantive.

Frankly, I am reluctant to blame President Trump on this front, given his longstanding (rhetorical) commitment to trade reform, which dates back to at least the late 1980s—especially since he vociferously denounces companies who offshore their production abroad, and seems to be making personal deals to keep industries from relocating.

Instead, I see the lack of reform as a manifestation of Kushner’s own ideological predilections—and of course those of the republican establishment, who above all represent grim corporatism and corporeal greed.

Chinese Intellectual Property Theft Costs America at Least $360 Billion per Year

Regardless of the administration’s internal politics, Trump’s latest inquiry should be something that receives bipartisan support in Congress—in fact, it may be the least-controversial thing President Trump has done.  Every single American should be in favor of protecting the intellectual property of American individuals and corporations from foreign conversion.

Why?  Because it costs us money—lots of money—it fundamentally undermines the rule of law, and it empowers China at our expense.

According to estimates from William Evanina, the director of the Counterintelligence and Security Center back in 2015, which were based on reports from nearly 140 American companies, cyber-espionage costs America’s economy $400 billion per year.  And, crucially, China’s government was ultimately behind 90% of those attacks.

Therefore, Chinese hacking is responsible for some $360 billion in losses in intellectual property annually.

Of course, this figure undoubtedly underestimates the actual damage significantly.  Why?  Two reasons.  First, companies (particularly public companies) are likely to mitigate damage estimates so as to not hurt their business relationships with Chinese investors and government officials (who could pull the rug out from under them) or their stock prices (investors don’t like to hear that 20% of their profits were stripped away by hackers).

Second, this figure only includes losses from cyber-threats, not Chinese copycat companies, who specialize in mimicking American products, and selling them in China (which is largely free from American competition).  Just look at the broad scope of some of these counterfeit products and you’ll get my point:

Chinese counterfeit productfake chinese counterfeit product, costs america billionschinese copycat products constitute intellectual property theft

The theft of American technology, brands, and products (including music, movies etc.) costs the US hundreds of billions annually.  About this fact there is no debate—the only question is how much it costs.

Another different study, this time made by the Commission on the Theft of American Intellectual Property found that the theft of intellectual property 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.

Both of these estimates severely undervalue the loss to America, for a number of reasons.  However, when one looks at the value of China’s counterfeit industry, the implications are staggering.

In fact, back in 2010 it was estimated that up to 2% of all global trade is in counterfeit products, about two-thirds of which were from China.  Another report published by the OECD in April, 2016 found that this number had increased, and that 2.5% of all global trade was in counterfeit products (61% originating from China).

The value of these products was $461 billion annually.  Therefore, China was responsible for $291 billion in fake products—not including intangible intellectual property of the sort previously discussed.  We’re talking specifically about physical goods at this point.

When taken together, the likelihood that China’s intellectual property theft costs America at least half a trillion dollars is actually quite high.

My point: intellectual property theft costs America big-time.

Of course, China’s blatant disregard for American intellectual property rights hurts us in other ways as well.  For example, it fundamentally undermines the rule of law (especially at an international level).  When other nations see China stealing technology from America without any repercussions, they are more likely to do the same—after all, they can only gain from doing so.

Imagine if blood-doping and steroids weren’t cause to disqualify Olympic athletes, do you really think there would be any ‘natural’ athletes left in a few years (if there are any left currently).  No.  Crime flourishes without consequences—people cheat even when there are no stakes, imagine what they’ll do if they can become millionaires by doing it?

Finally, it should be noted that China’s theft of American intellectual property is one of the primary reasons why they’ve been able to catch up so quickly in terms of technology.  This is bad for America because: (i) the more technologically sophisticated China becomes, the less it depends upon America economically and (ii) China has proven itself more than willing to deploy stolen technology in its military—we are fueling China’s rise, while at the same time reducing the interdependent nature of our relationship.

Basically, intellectual property theft, as well as a host of other dirty tricks, gives China the upper hand.  This should be avoided at all costs—America must remain the top-dog.

Follow IWB on Facebook and Twitter