Manufacture This

The blog of the Alliance for American Manufacturing

As President Trump initiates action, it’s vital to remember why it came to this.

It’s the week of trade — and things aren’t slowing down yet.

President Trump on Thursday announced a three-pronged approach designed to address China’s rampant intellectual property theft, which will include about $50 billion in tariffs, the filing of a complaint at the World Trade Organization and an investigation into Chinese investments in the United States.

And that wasn’t the only big trade news announced on Thursday. On Capitol Hill, U.S. Trade Representative (USTR) Robert Lighthizer announced the countries that will be exempt from unrelated tariffs on steel and aluminum. Along with Canada and Mexico, which already had been exempted, the European Union, Argentina, Australia, Brazil and South Korea will not be subject to the tariffs, which officially go into effect on Friday.

We’ve spent quite a lot of time in these parts talking about the steel stuff — here’s a quick explainer video if you’re looking for background — but given that Trump is now shifting his focus to taking on China’s intellectual property theft, we thought it would be useful to offer some thoughts on that issue.

Whether or not you like Trump — he certainly doesn’t do himself any favors, to put it mildly — it’s important to take a step back and remember that this latest trade action isn’t coming out of thin air.

For years now, China has been stealing the intellectual property (IP) of American companies and engaging in other unfair trade practices that harm American businesses and cost American jobs.

For example:

  • The Chinese government and Chinese military have “infiltrated the computer systems of U.S. companies, stealing terabytes of data, including the companies’ intellectual property (IP) for the purpose of providing commercial advantages to Chinese enterprises,” according to a 2017 report from the USTR.
  • In order to operate in China, American companies are forced to transfer their technology to the Chinese government. This is done by Beijing to give itself a leg up on research and development (R&D) at the expense of American companies that spent years and lots of money on that R&D. For example, China forces foreign electric vehicle makers to transfer their IP to China as a condition of market entry, even though World Trade Organization (WTO) rules prohibit such practices.
  • Meanwhile, the Chinese government is investing heavily in U.S. companies and other assets in order to capture additional strategic technology and other valuable information. Along with putting other investors at an unfair disadvantage — remember these purchases are being driven by China’s communist government, not the open market — there’s also big security concerns, which is one reason why the Trump administration recently blocked the takeover of Qualcomm by rival Broadcom.
  • Online piracy also remains a huge problem, according to the 2017 USTR report. A wide range of industries have been effected, from music and movies to books and journals and software and video games.  

In essence, what China is doing is stealing the intellectual property and trade secrets of American companies and then using that stolen knowledge to manufacture its own products. That forces American companies to compete against the very same products they spent time and money developing and perfecting.

Not surprisingly, American companies have been (rightfully) complaining about this problem for quite some time.

President Trump talked a big game about China’s IP theft during the presidential campaign, and in August 2017 signed an order that led to Lighthizer undertaking an investigation into the practices. The actions announced on Thursday come from the results of that investigation, which you can read here.

It’s also worth noting that there’s bipartisan support for action. Senate Minority Leader Chuck Schumer (D-N.Y.) said on the Senate floor that while “I don’t agree with President Trump on a whole lot… today I want to give him a big pat on the back. He is doing the right thing when it comes to China.”

As AAM’s own Scott Paul put it, “there’s no disagreement that China cheats. The only question is, do we continue to ignore China’s cheating or do we finally act decisively to stop it?”