President Trump has officially picked a fight with China, announcing Thursday that the United States is imposing up to $60 billion in new tariffs on Chinese goods, along with additional restrictions on China’s ability to invest in US companies.
How China will respond is unclear. The Chinese government has sent mixed signals about its readiness to negotiate but also its willingness to retaliate, including against vulnerable sectors of US agriculture. Just the threat of a trade war was enough to rattle global markets and push the Dow Jones Industrial Average down over 700 points.
At its root, this is a fight about intellectual property: how US companies try to safeguard their innovations, and how China tries to get around those safeguards via reverse engineering, coercion, or even theft.
Pirated software is perhaps the most familiar example, so common across China that one trade group has estimated that as of 2015, 70 percent of software installed on Chinese personal computers was unlicensed.
But that’s only the beginning. Sometimes, the only way for US businesses to gain access to the Chinese market is by partnering with a local firm and handing over precious intellectual property — which could be anything from new manufacturing techniques to software algorithms. Refuse, and businesses can be subject to provisions of Chinese law that actually force dominant companies to license their treasured tech to competitors.
If that doesn’t work, China also engages in various forms of industrial espionage: hacking into US companies to gather sensitive information, or luring away employees who might pass along well-guarded details. Affected businesses span the economic gamut, from wind turbine programmers to semiconductor manufacturers to the makers of genetically modified seeds.
The full extent of these practices is hard to quantify, as is the cost to US businesses and consumers. There’s no central repository of incidents, and many of the companies affected might not even know they were infiltrated or exploited.
During Thursday’s announcement, Trump put the figure at “hundreds of billion of dollars,” though his administration later released a fact sheet estimating the annual cost from improper IP transfer at approximately $50 billion per year, or something closer to 0.25 percent of gross domestic product.
Yet whatever the exact number, the politics are potent — centered around a narrative of innovative US companies having their hard work stolen away by a foreign economic rival. It’s a neat fit with Trump’s longtime contention that the global trading system is rigged against America.
The question is: Can Trump’s plan for new tariffs and other pressures make a real difference?
As with all tariffs, there will be costs, including for consumers, who probably will have to pay more for some electronics gear. Those costs will only grow if China responds in kind, whether taxing select agricultural imports, placing further restrictions on new US businesses, or cutting cooperation with firms already on the ground in Shanghai or Beijing. Worries of this damaging tit-for-tat helped fuel Thursday’s stock sell-off.
But an escalating trade war isn’t inevitable. Commerce Secretary Wilbur Ross said he thought we would “end up negotiating these things rather than fighting over them.”
Just as important, China has also signaled a willingness to talk, suggesting that Trump’s gambit could work, creating some real, effective pressure that ultimately forces China to rethink its approach to US intellectual property rights.
Trump’s negotiating position was probably strengthened by his decision last week to reject a proposed takeover of the US telecom firm Qualcomm, for fear that it would give China too much control over wireless technology. If he could attract allies in Europe and around the world — many of whom share concerns about China’s lack of respect for intellectual property — that also would help, including by building broader support for another action Trump unveiled Thursday, a challenge against China at the World Trade Organization.
But here’s where Trump’s mercurial side becomes a liability. In recent weeks, he has angered key trading partners with the announcement of wide-reaching steel and aluminum tariffs — not to mention making himself look unprepared for sacrifice by saying trade wars are easy to win.
There may well be a deal out there on protecting US intellectual property, which this package of tariffs and other restrictions can help forge. All that’s required is for Trump to prove himself the deal-maker he has long claimed to be.