IP Commission Thinks YOU Should Pay For China's Infringement

Overhype

from the alternatively,-it-could-just-deduct-$1,000-a-year-from-your-paychecks dept

As Mike discussed in a previous post, the IP Commission’s report on “theft of American IP” points a finger almost exclusively at China. And, as was pointed out in another post, the report is also loaded with some genuinely terrible ideas (protect IP with malware, anyone?). Here’s another one: starting a trade war with China over intellectual property. This recommendation, taken from the final pages of the document, is both a broadside against China and a genuinely terrible idea.

Generally speaking, instigating a trade war is a bad idea, even when you have the upper hand. Instigating a trade war over something as poorly defined (especially in this report) as “IP theft” is a worse idea. Instigating a trade war with a country that already has you staring down the barrel of a steep trade deficit is just asking for trouble. The US has tried this sort of thing before (to protect the American steel industry) and found itself facing retaliatory tariffs from European nations as well as having its tariffs declared illegal by the World Trade Organization.

No one truly “wins” in a trade war, but there’s no shortage of losers — mainly the consumers caught in the crossfire. But despite the enormous potential downside and the shortsightedness of this move, the commission seems to feel protecting the US from “IP theft” is worth the sacrifice. (It helps that the entire sacrifice will be borne by others.) The commission’s recommendation bases itself on the claim that China alone is responsible for around 70% of the “$300 billion” it claims the US is losing every year. And it aims to make China pay… by making Americans pay. In the “Potential Future Measures” section (Chapter 14), the commission makes this suggestion:

Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce. This tariff would be subject to modification by the president on national security grounds.

The argument for this proposal is that only by seriously limiting the U.S. market for Chinese goods and services will sufficient incentive be created for Chinese authorities to systematically reduce IP theft. The method proposed to accomplish that goal is to impose the calibrated tariff just described.

While such action would allow retaliation, the huge Chinese trade surplus with the United States could cause the retaliation to be ineffective. Chinese exports to the United States are between three and four times the dollar value of U.S. exports to China.

The Commission is not prepared to make such a recommendation now because of the difficulty of estimating the value of stolen IP, the difficulty of identifying the appropriate imports, and the many legal questions raised by such an action under the United States’ WTO obligations. If major IP theft continues or increases, however, the proposal should be further refined and considered.

Wonderful. Despite the fact the commission openly admits it can’t accurately estimate the value of “stolen IP,” and despite the fact this plan could possibly be illegal, it proposes that, in the middle of an economic downturn, the government should artificially raise the price of consumer goods in order to ensure the fiscal well-being of the MPAA, RIAA and the BSA. This would add $450 billion in tariffs onto the cost of imported goods. This works out to roughly $1,000 per person annually, or $4,000 for a family of four. China’s manufacturers aren’t simply going to eat the tariff. They’ll either raise prices or stop shipping to the US. Costs of goods will rise in the US no matter which path they take. Kicking a major competitor out of the market tends to have that effect, especially when the competitor prices aggressively.

Now, these industries will make assurances that the money they’re receiving (as part of an international “you must be a pirate” tax) will be shoved right back into the economy, either through job creation or additional investments. But those assurances won’t mean much to Americans being stretched even thinner by rising prices, especially when they notice this plan basically transfers money out of their pockets and into the accounts of select US companies.

The commission feels that by artificially limiting China’s exports, it can force the country to respect US intellectual property. The reward for China would be a decrease in the tariff, provided the “theft” numbers drop. But if I know anything about industries and subsidies (which this essentially is), those benefitting from this “deal” will soon be hooked on the new revenue stream and will have zero incentive to officially recognize any sort of downturn in Chinese infringement.

And if I know this, then you’d better believe China knows this. Instead of being rewarded for making efforts to curtail infringement, it will more likely see the tariff increase or hold steady, rather than decline by any appreciable amount. There’s little incentive for China to improve its IP record and next to no incentive for IP industries to wean themselves off the tariff. All this will do is inch us closer to the frontlines of a trade war with the largest exporter in the world — a war we can’t hope to win and one that puts the American consumer right in the line of fire.

Filed Under: china, commission the theft of american intellectual property, dennis blair, henry jackson, intellectual property, ip, ip commission, ip theft, john huntsman, trade war
Companies: national bureau of asian research