Trump and China: Going With Patent Holders Against Workers

While most of us don’t have access to the inner workings of the Trump administration to know exactly what is going on with its negotiations with China, given the public accounts and statements, it seems workers have clearly lost. Trump seems to have made the concerns of companies like Boeing, who want more help maintaining their control over technology, his top priority. The impact of an under-valued Chinese currency, which has led to a large U.S. trade deficit, seems to have been dropped from discussion.

The disappearance of currency “manipulation” from the discussion is more than a bit ironic, since Trump made this a centerpiece of his presidential campaign. He ran around the country complaining that China was a world class currency manipulator. He pledged that he would declare China a currency manipulator on Day One of his administration and apply corresponding trade sanctions.

We’re getting close to Day 700 and there is still no declaration on China’s currency practices. Furthermore, the topic has been virtually dropped from public discussions.

What is highlighted is that Trump is pressing China to end practices that require U.S. companies to transfer technology to Chinese partners and also to stop corporate espionage where Chinese companies infiltrate U.S. companies to obtain their latest technology.[1] Most of the media cover this as though Trump is pursuing a genuine national interest in pressing this issue, as opposed to the interest of a small number of large corporations.

This is seriously wrong. In fact, if Trump is successful to pushing his “anti-intellectual property theft” agenda with China, it will actually be bad for most of the nation’s workers.

At the most immediate level, suppose Boeing, GE, and the rest know that they can now set up operations in China without having to take on a domestic partner and transfer key technologies. Fans of economics would say that this change would make them more likely to establish manufacturing facilities in China. In other words, this is a great victory for outsourcers.

Let’s look at other dimensions of this issue. Suppose that Trump’s tough line on intellectual property means that Boeing and GE can have more profits from China. Suppose also that greater respect for U.S. patents and copyrights increases the profits of Microsoft, Pfizer, and Disney.

This is all very good news for the folks who own lots of stock in these companies, and probably for their top executives as well, but it’s a bad story for the rest of us. After all, if China has to pay these companies more money for their intellectual property claims, then it has less money to buy other items from the United States.

The way this works out in the market is that if China needs to pay more royalties, licensing fees, and other payments associated with intellectual property claims it increases their demand for dollars. This raises the value of the dollar against the Chinese yuan, other things equal. With the dollar more highly valued, U.S. produced goods and services are more expensive for people living in China. Conversely, the higher valued dollar makes Chinese produced goods and services cheaper for people living in the United States. This will make our trade deficit larger in items other than intellectual property charges.

There is another aspect to this issue that continues to get virtually zero attention. Patent and copyright monopolies are one mechanism for financing research and creative work. They are not the only one (for example we do spend tens of billions on direct government funding through the N.I.H. and other agencies) and they may not be the most efficient mechanism.

There is an ongoing debate on inequality in the U.S. with the almost universally held view (at least according to major media outlets) that those who have mastered technology are getting ahead, while those relying on less-skilled work are falling behind. The length and strength of patent and copyright monopolies directly determine the payoffs to people who master technology. Bill Gates would still be working for a living without his government-granted monopolies on Microsoft’s software.

In the story of U.S. trade negotiations with China, the Trump administration is very directly pushing to make patent and copyright protections longer and stronger. He wants to make sure that Chinese companies and individuals have to pay as much to U.S. companies for their patent and copyright claims as do companies and people in the United States. This means yet more money going to those at the top.

If anyone thinks this is a nationalist issue as opposed to a rich people’s issue, think a bit more carefully. The Chinese economy is already close to 25 percent larger than the U.S. economy. It stands to be almost twice as large as the U.S. economy in a decade. China also invests a considerably larger share of its GDP in research and development.

Given these basic facts, China is virtually certain to have much more technology to “steal” than the United States in the very near future, if it does not already. If there is no system of well-developed rules on respecting intellectual property claims, the United States stands to gain more from using technology developed by China without paying for it than China does by using technology developed by the U.S.

I have literally not seen this point made anywhere in the U.S. business press. Perhaps I don’t read enough, but this rapidly changing balance seems a central part of the picture. Implicit in the idea that the U.S. as a whole benefits by locking down technology, is the view that we have more technology at risk than does China. But with that clearly not being the case, or surely not the case for long, there is no national interest in setting up strong rules protecting intellectual property claims.

There is of course the narrow interest of the companies and individuals who benefit from these claims. They will get still richer at the expense of the rest of us. And then, the philanthropically minded among them can finance research by well-credentialed academics on the causes and cures for inequality. Some reporters may even write some good pieces on the topic.

Just to step back for a moment, it would be desirable to have international mechanisms for ensuring that the costs of research and development are shared in some equitable manner across countries. But this hardly requires the patent and copyright monopolies that we now have. We could instead rely on more modern mechanisms that focus on making information free and openly available.

Unfortunately, the people designing our trade policy have little interest in promoting the development of technology or economic efficiency. They want to maximize the amount of income going to the top. Anyone who thought Trump was on the side of the ordinary worker should realize from his actions on trade with China that this was a bad joke, if they had not already come to that conclusion.


[1] This is a practice that U.S. companies engage in as well. For example, Uber was sued by Waymo after it hired a top engineer in the effort to design self-driving cars. The engineer brought Uber a large number of discs containing software developed by Waymo. So corporate espionage is not a uniquely Chinese story. It’s not clear if Chinese firms are more likely to engage in illegal infiltration of their U.S. competitors than other companies.

This column originally ran on Dean Baker’s blog.

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC.