Make no mistake: this is the single biggest anti-trade act the world has seen since the Iranian revolution’s nationalisation program from 1979. President Trump’s announcement of wide-ranging trade tariffs against China, on top of the steel and aluminium tariffs, were announced like this: “We have a tremendous intellectual property theft situation going on.”
Anyone can go down to their local Ssanyong dealer, Event Cinema, phone shop, or itinerant Louis Vuitton bag market-seller to see how China treats I.P. property, all the way to the bank. Xiaomi, Weibo, and Youku are viewed by many as total imitators of Apple, Twitter, and YouTube.
The World Intellectual Property Organisation defines intellectual property as “creations of the mind: inventions; literary and artistic works; and symbols, names and images used in commerce.”
You kind of expect an economy to get more sophisticated over time with its own inventions and creative capital, commercialise up into the value chains, away from bulk and cheap goods. But as the development of the New Zealand economy itself shows, there’s no inevitability to that. The U.S. suspicion is that China remains a copycat economy, coasting on U.S. intellectual drive.
The Chinese government in many areas remains explicit about strong-arming tech transfer as a condition of direct access to their economy. Collaboration – as we’ve seen with Facebook trying to get into China – is the price of commercial peace. China wants source code. Individual companies make their own decision on that explicit price of the deal.
China has the largest e-commerce market in the world, with over 550 million buyers and 700 million internet users. The price of entry to that is code access, and database access. Go to China and you can’t get Facebook, Google, Snapchat, Pinterest, many foreign films, Apple Ibooks and Itunes, and any network you access has full government access. They are still trying for access.
Investigations by U.S. trade specialists last year probed Chinese violations of U.S. intellectual property under Section 301 of the 1974 Trade Act. Conclusion: China used foreign-ownership restrictions to compel American companies to transfer technology to Chinese firms. Plus, directing firms to buy U.S. ones to get secrets. Plus, cyberattacks to access trade secrets.
What is at stake – apart from the stability of the entire world economy – is policies by the Chinese government that require foreign companies in China to share their technologies either with the state and its regulators (for national security concerns), or to engage in partnerships with local companies in specific sectors with the requirement of tech transfers. This isn’t I.P. theft per se. It’s commerce.
This can be seen as a highly developed economy attacking a less developed and much poorer economy. Strong I.P. rights favour the world’s rich, idea-exporting, patent-holding countries over poorer countries. But who will invest in the smart ideas we all need and demand if they’re just going to get ripped off?
The U.S. ain’t pure in this. Charles Dickens complained bitterly of “the exquisite justice of never deriving a sixpence from an enormous American sale of my books.” The U.S. got away with I.P. theft from the U.K. on a grand scale. Trade practices now prohibited, including high tariffs, dumping, I.P. theft, and other competitive measures, were key to growing the U.S. as the economic power it is today.
But the U.S. is signaling that it is high time that the world cooperated commercially to get more out of access with China: more I.P. investment protection, less theft, lower thresholds to market access.
In turn, China knows it has a stake in protecting its own growing intellectual property, and are a long way from having so a strong domestic economy that does not need international trade.
These countries need each other far too much to start trade wars as the U.S. has just done.
Also, China can and does change. In April 2017 they allowed foreign majority ownership of automotive joint-ventures by 2025.
That gives their industry time to mature. As the world’s biggest auto market, that’s big for managerial freedom, electric vehicle tech evolution, and of course investment certainty. This move came off the April 2017 meeting between Chinese President Xi Jinping and U.S. President Donald Trump, which produced a 100-day plan geared towards reducing trade imbalances. It’s been only a year, and now this.
Notably New Zealand is not among the tight friends that the U.S. awarded steel and aluminium exceptions to Canada, Australia and others. In current trade politics, that is a useful demonstration of our neutrality between the two.
But tethered to China through our Free Trade Agreement, to Australia by CER, and to a large newly-built CPTPP raft with untested binds on its floats, we face global economic waves that are getting very high very fast as the world’s trade Godzillas rise.