The Jury Talks Back

5/9/2019

Trump’s Tariffs Are Not About IP Theft

Filed under: Uncategorized — Patterico @ 6:31 am

One issue that repeatedly comes up as a defense of Trump’s tariffs is China’s theft of intellectual property, or “IP.” This isn’t the real reason why he imposes the tariffs, though, and there are better ways to handle the problem — which is a real problem, albeit one that is exaggerated by tariff supporters.

Don Boudreaux explains why Trump’s tariffs are not motivated by IP theft:

For a number of reasons, I don’t buy this explanation of the president’s motives for imposing these tariffs.

First, because Trump repeatedly reveals his deep hostility to free trade, there’s no reason to believe that his tariffs are motivated only, or even mainly, by a desire to prevent IP theft. The likelihood is strong that the president and his trade advisers point to this theft merely as a convenient excuse for the protectionism that they would want under any circumstances.

Consider in this light Trump’s incessant yet misguided griping about the U.S. trade deficit with China. Because this trade deficit has nothing whatsoever to do with IP theft, we would hear no such griping if the main purpose of his tariffs were to protect American IP. The same can be said about Trump’s complaints about Beijing’s alleged currency manipulation.

I noted this just yesterday. Here is a recent Trump tweet:

His obsession is the trade deficit, which is actually a good thing, not a bad thing. It’s not IP theft.

Boudreaux continues:

Second, it’s nearly impossible for ordinary Americans to know exactly how much IP theft occurs in China. And so a protectionist administration, such as Trump’s, has powerful incentives to overstate the extent of such theft in order to amplify popular support for tariffs that are said to be imposed in retaliation.

Third, if Trump were truly interested in halting this alleged IP theft, his administration would file a complaint with the World Trade Organization (WTO), which has explicit procedures for settling such a dispute. As far as I know, the administration hasn’t done so.

Fourth, Trump’s allegations of Chinese law-breaking are hypocritical and ring hollow given that his unilaterally imposed tariffs are themselves a clear violation of WTO rules — rules that the U.S. government has agreed to follow.

Fifth, Trump’s tariffs are first and foremost punitive taxes on Americans who buy imports from China.

But, you may reply, there still is an undeniable problem, even if Trump has motivation to exaggerate it and even if his current policy is motivated by economically ignorant mercantilism and an insufficient appreciation for the benefits of voluntary exchange unhampered by the coercive power of government. So what do we do about that?

This piece takes on several of the key complaints of protectionists and shows in detail that they are exaggerated, not unique to the Chinese, and that the Chinese are making improvements in these areas. The piece nevertheless acknowledges that China has failed to live up to international expectations and suggests a measured response that (unlike Trump’s tariffs) addresses the specific problems complained about — rather than doing what Trump’s tariffs do, which is to upend many beneficial transactions and impose costs having nothing whatever to do with the alleged problem.

Instead of the lose-lose policy of escalating tariffs, a policy of targeted response against specific infractions and more general diplomatic measures to encourage China to move in more proreform direction would yield better outcomes.

I hesitate to summarize those solutions here because it will keep people from reading them in their proper context. But I will say that one of the solutions is “targeted legal and administrative action against Chinese parties directly responsible for IP rights violations.” One of the companies cited is Huawei, which was indicted for stealing trade secrets from T-Mobile. But Trump has sent mixed messages about Huawei. He has even gone so far as to suggest that an arrested Huawei executive could be used as a bargaining chip in negotiations over a larger “deal” about tariffs.

When asked if he would intervene with the Justice Department in her case, Trump said in an interview with Reuters: “Whatever’s good for this country, I would do.”

“If I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” Trump said.

Not only is this creepy, it also incentives China and other countries to make bogus arrests of American businessmen, since the U.S. has set the precedent that such arrests can be negotiating tools. In short, Trump’s erratic nature makes all this very difficult.

The bottom line is that IP theft happens and it should be dealt with, but in a responsible way that doesn’t use it as an excuse for massive tariffs that have zero to do with the (exaggerated) IP problem and which hurt Americans — consumers and producers alike.


Powered by WordPress.