Tariff On Chinese Goods: A New Protection For Future Intellectual Property

By Spencer Chorney (Rutgers Law Student)

President Trump recently signed a memorandum instructing the United States Trade Representative (USTR) to introduce a new tariff worth $50 billion on Chinese goods imported into the United States under the Section 301 of the 1974 Trade Act.  The premise of this tariff comes from the theft of U.S. intellectual property that China has continuously  performed. Amongst the types of goods that are being targeted include, but are not limited to, aerospace components, information communication technology and machinery.

The Commission on the Theft of American Intellectual Property has estimated that the annual cost to the U.S. economy continues to exceed $225 billion in counterfeit goods, pirated software, and theft of trade secrets and could be as high as $600 billion. The goal of the tariffs is to limit future theft of U.S. intellectual property and to decrease the current losses that are being experienced.

In addition to the tariffs, President Trump instructed the USTR to filed a request for consultations with China at the World Trade Organization (WTO) to address China’s discriminatory technology licensing requirements. The USTR claims under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), China is breaking WTO rules by denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends.  Another WTO rule that China appears to be breaking is imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology.

The request for consultation is the initial step the settle WTO disputes. However, if the United States and China are not able to reach a mutually agreed upon settlement, the United States may request the establishment of a WTO dispute settlement panel to review the matter.

In response to the actions taken by the U.S., China called it strongly disappointing and firmly opposes the request for consultation. China also called the actions self-defeating for the U.S. because they will directly harm the interests of U.S. consumers, companies, and financial markets. Additionally, China believes international trade order and world economic stability are also in jeopardy.  

However, China was not willing to back down. Although they stated that they are not in favor of a trade war, they are neither afraid of nor willing to recoil from a trade war. China is confident and believe they can face any challenge.

In an interview with NPR, Scott Kennedy, a specialist on China’s economy, discussed China’s use of American intellectual property. Kennedy states China has joined every international intellectual property rights agreement in the past 30 years and they have developed their own copyright, patent, and trademark laws. However, China’s policy when it comes to the high-tech industrial is about acquiring technology.

With both implementing the intellectual property laws and following the national high-tech industrial policy, conflict arises.   Chinese companies are more incline to try and achieve the policy than to follow the legal framework in place because they believe that the importance of satisfying the national interest might—and has—cause the government to ignore any of the legal violations.

Introducing the tariff has the potential to pressure China into changing their methods, however, it is a double-bladed sword. As Kennedy points out, the tariff could lead to a trade war that would only increase the theft of intellectual property.

Early reactions on the tariffs have not been good. The Dow dropped 724 points, or 2.9%, as a result of the looming tariffs on China. That decline in the Dow Jones was the fifth-largest point decline in history and the market’s worst day since the extreme turmoil of early February. However, this might have been an unavoidable circumstance to a necessary action.

The ability to control intellectual property is crucial to future of the U.S. economy. With innovation in all fields being the most important thing in the foreseeable—and unforeseeable—future, if other countries can ignore the laws and policies put in place, they will control the market. With the possible theft of their intellectual property, inventors might be disincentivize from innovating if there is no reward for their work. A resulting stagnation in U.S. innovation, as a result of fearing for intellectual property theft, will cause a larger hit on the economy in the long run, than the 2.9% drop. 

The actions taken by the U.S. to halt China’s intellectual property theft is an initial step to be better off in the long distance future, even if there is a some immediate decline.