Why US accusations of IP theft by China don’t add up

Yu Yongding says America’s Section 301 trade investigation, based on rumour and half-truths, ignores the benefits that US companies have gained from their voluntary entry into China, China’s anaemic investment into technology in the US, and Beijing’s improvement in IP protection

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Published: 2:03am, 29 Jun 2018Updated: 2:03am, 29 Jun 2018

No one wins in a trade war. Yet US President Donald Trump seems determined to pursue one with China, which he accuses of causing the United States’ trade deficit, violating World Trade Organisation rules and using unfair practices to acquire foreign technology. While most economists marvel at Trump’s ignorance of how trade balances work, many broadly agree with his charges regarding intellectual property (IP). But the evidence supporting these claims is also weak, at best.

The so-called Section 301 trade investigation launched by Trump’s administration last year accused China of acquiring foreign technologies using discriminatory licensing restrictions, unfair technology-transfer agreements, targeted outbound investment, unauthorised intrusions into US commercial computer networks and cyber-enabled IP theft.

“The weight of the evidence”, the report concludes, shows that China uses foreign-ownership restrictions to force US companies to provide their technologies to Chinese entities.

But the case is not nearly as strong as the report makes it out to be. For starters, because Chinese firms are not starved for capital – thanks to China’s chronic savings glut – gaining access to foreign technologies is their main motivation for trying to attract direct investment from abroad. Under WTO rules, they are free to seek technology transfer from their foreign partners on a commercial and voluntary basis.

Fortunately for China, foreign firms have been more than willing to enter its market, not least because of its preferential treatment of direct investment. In fact, for decades, foreign and domestic firms alike have willingly accepted China’s “market access for technology” strategy, which required foreign investors to “import” advanced technology in exchange for entering the Chinese market.

Why US accusations of IP theft by China don’t add up

Yu Yongding says America’s Section 301 trade investigation, based on rumour and half-truths, ignores the benefits that US companies have gained from their voluntary entry into China, China’s anaemic investment into technology in the US, and Beijing’s improvement in IP protection

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