What if Trump wins the China IP dispute?
By Scott Sumner
I don’t think the US will win its trade war with China, nor do I think a win would be desirable. Nonetheless, it’s worth thinking about what would constitute a win. Who would benefit and who would lose?
In my view a win would entail the following:
1. China agrees to stop stealing US intellectual property, and instead buys the intellectual property.
2. After China gives in, we remove the tariffs on Chinese goods that were imposed in retaliation for IP theft.
If that were to occur, who would win and who would lose? One group is obvious:
1. US IP producers would be winners. This would boost incomes in areas such as Hollywood and Silicon Valley, as there would be less piracy and more commercial exports of films, music, software, etc.
Here are some other effects of a US victory:
2. US imports would increase. That’s because any policy that boosts exports also tends to boost imports. While the increase in exports would be mostly in IP goods, the increased imports would be in middle and lower tech goods, such as furniture, textiles, autos and auto parts, home appliances, etc.
3. The dollar would get stronger, which would reduce the export of non-IP products, such as oil and food.
4. The income distribution in America would become more unequal. Incomes would rise in coastal California, Boston, Manhattan and the DC area. Incomes would fall in the rust belt and parts of the South, as lower tech industries lost out to import competition. The farm belt and the oil patch would also be hit.
Is that what the protectionists want?
PS. Again, this is not a prediction of what will happen, rather what would happen.
If we “win”.