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The Real Reason behind the US-China Tariffs | Intellectual Property Theft

"In order to play in that market, you have to disgorge information [and] you have to make it available to local operators,"

The U.S. trade deficit with China was $375 billion in 2017 and that is often sighted as Trump’s reason for imposing a 25% tariff on steel imports and a 10% tariff on aluminium. However, there may be a much bigger underlying reason behind the tariffs, intellectual property theft.

China has been accused to have forced U.S.’s firms to transfer technology to their Chinese business partners in return for access to the country’s 1.4 billion citizens. The Trump administration opened an investigation into intellectual property theft by China in August and detailed plans to slap tariffs on at least $50 billion worth of Chinese goods in an effort to punish Beijing.

China’s theft of American intellectual property

The Commission on the Theft of American Intellectual Property estimates the annual costs from the loss of intellectual property ranges from $225 billion to $600 billion. IP theft includes the sale of counterfeit goods and pirated software, as well as stolen corporate secrets. Furthermore, the US Office of the Director of National Intelligence has calculated the cost of economic espionage by hacking to be $400 billion a year. By far, the majority of that is due to China, and despite public promises by President Xi Jinping to end such practices, public and private observers alike see no reduction in Chinese hacking.

In order to sell their goods in China, American firms have to set up a partnership or joint venture with a Chinese company with technology transfers guaranteed in the deal. Even though such arrangements are formally not allowed by the World Trade Organisation, analysts say such negotiations are usually conducted in secret.

“In order to play in that market, you have to disgorge information [and] you have to make it available to local operators,”

 

In a 2018 survey conducted by the American Chamber of Commerce in China, more than half of members reported that leakage of intellectual property was a larger concern when doing business in China than elsewhere. More than 80 percent of members of the US-China Business Council, a leading trade organization for American companies that do business in China, said they’re concerned “about China’s policies on data flows and technology security,” according to a 2017 member survey.

A paper by the St. Louis Federal Reserve in 2015 estimated that half of the technology possessed by Chinese companies came from foreign firms.

 

Theft of sensitive US military technology

Despite a cyber-warfare truce, one defence analyst said China is probably still engaged in the theft of sensitive U.S. military technology. Hacking over the years is one of the reasons China has been able to narrow the gap with the U.S. in advanced missiles, drone technology and even stealth aircraft. A report by the DoD predicts that by 2030 the Chinese could dominate artificial intelligence and exploit it for military purposes.

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For example, the final design of China’s J-20 stealth fighter plan resembles the F-22, a stealth fighter made by U.S. defence contractor Lockheed Martin. China’s smaller stealth fighter, called the , in development is seen as a knockoff of Lockheed’s F-35.

A federal grand jury in 2014 indicted a Chinese national for a computer hacking scheme that involved the theft of trade secrets from Boeing’s C-17 military transport aircraft. The individual, who last year entered a guilty plea, also was accused of working with two co-conspirators based in China to steal military data about the F-22 and F-35 jets.

“What Beijing has been very good at is targeting U.S. defense contractors, getting into their computer systems through various types of essentially cyber warfare and stealing the designs of some of America’s best military assets,” said Harry Kazianis, director of defense studies at the Center for the National Interest.

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