Trade war with China not unjustified

By Charlie Damschen | Guest Editorial

Why are we in a trade war with China?

This seems to be a question on the minds of many people these days — especially in our state, as the fallout from this trade war may be particularly poignant due to retaliatory tariffs China has placed on soybeans, corn and pork.

From the outside, it appeared as though the U.S. trade relationship with China was chugging along just fine. If we needed inexpensive manufacturing, we knew where to source it. If we needed to sell some government bonds, we had a buyer. Sure, almost everyone is aware of the trade deficit the United States has with China, but there were even some signs of progress on that metric. In 2016, China became the largest market for General Motors.

If we dig a little deeper, we find the core of this apple is rotten. In March of this year, the
U.S. Trade Representative (USTR) released a 215-page report under Section 301 of the Trade Act of 1974. To compile this report, the USTR performed a detailed and thorough investigation of China’s policies and practices regarding the transfer of intellectual property and technology.

The findings were not pretty, with the USTR concluding that the Chinese government both sponsors and encourages unfair trade practices relating to U.S. technology and intellectual property. For example, the report found that China uses joint venture requirements and other investment restrictions to require or pressure technology transfer from U.S. companies to Chinese entities.

Additionally, the report found that the Chinese government directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property, and to generate large-scale technology transfer.

Lastly, the Chinese government has conducted and supported cyber intrusions into U.S. commercial networks targeting confidential business information held by U.S firms, which has given Chinese businesses unauthorized access to a wide range of commercially valuable business information (e.g., trade secrets, technical data, negotiating positions, etc.).

Simply put, China is eating our lunch when it comes to intellectual property and technology transfer. When the USTR finalized tariffs on $200 billion of Chinese imports in September, it stated that the new tariffs were necessary because “China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property.”

At least some of the unprecedented growth in the Chinese economy over the last 25 years has come at the expense of U.S. companies, shareholders and workers. The most valuable assets of U.S. companies are their intellectual property, which is in contrast to the economy of 100 years ago, when tangible assets were of highest value.

Something needed to change, and while the methods or means of the current administration may not be the ideal solution, we can all agree on the desired ends — a stop to China’s blatant, state-sponsored intellectual property and technology theft. Though the answers to this problem are yet under investigation and even debate, being aware that it exists is a good first step toward a well-informed solution.

Charlie Damschen is a partner at Hamilton IP Law with offices in Coralville and Davenport.