Tyler Cowen always has insightful arguments, so I’m open to having my mind changed on this issue. But right now I’m having trouble seeing things Tyler’s way on intellectual property (IP) theft:
Actions from the Chinese side have led to what is arguably, in the aggregate, the greatest peacetime theft of property in all of history. So what should be done about that?
Maybe not very much? That’s my gut reaction, but how can I defend it? I’d like to reframe this issue by first considering a bunch of hypotheticals:
1. Let’s suppose China stole $1 trillion in stuff like cars, TVs, jewelry, cell phones and computers from America. How would we feel about that?
2. Let’s suppose that, in aggregate, America’s college students pirated $1 trillion in free stuff off the internet, (movies, music, etc.) How would we feel about that?
3. Let’s suppose that the market value of the IP stolen by China is $1 trillion, and it’s all valid IP.
4. Let’s suppose that the market value of the IP stolen by China is $1 trillion, and it’s mostly stuff where IP protection is not economically efficient (say 75 year old Disney films.)
I think we all agree that #1 would be really bad, and worth resisting strongly. I’m less sure about #2. It’s probably bad in some sense, but I’m not sure it’s worth doing much about.
In one respect, #3 and #4 are clearly different from #1. In case #1, Americans who had goods stolen would be better off if China did not exist, or more realistically if it existed but was a Maoist closed society with no contact with the rest of the world. But what about cases #3 and #4? Is this really the same sort of “theft”? In those cases, US firms would be no worse off than if China did not exist. That’s VERY different from case #1. In a legal sense they may all be “theft”, but legal definitions are not very helpful. We all know of things like smoking pot and jaywalking that are technically illegal, but not actually very serious crimes.
As an analogy, some people argue that “taxation is theft”. My response is “so what”? That doesn’t make taxation bad; you’d want to evaluate taxes on a case-by-case basis, on utilitarian grounds. Is it good theft or bad theft? Don’t let words do the thinking; look past them to the underlying concepts.
Here’s what I’d want to know in order to form an intelligent opinion on #3 and #4:
How much IP has China stolen? What is the market value? What fraction is stuff that never deserved IP protection, because (in utilitarian terms) the costs of the protection exceeded the benefits? How does the amount stolen compare to the amount stolen by American college students? How much was stolen by the Chinese government to boost their military power, and how much by private firms for selfish reasons? How much would it cost the US to stop Chinese firms from stealing IP? I’m not seeing any data from the proponents of cracking down on China. I don’t expect precise numbers, but one can’t argue that it’s clearly a massive problem without at least some numbers.
But that’s just the beginning. Then I’d want to know how much of that stolen IP would have been purchased by China if theft were not possible. That’s likely a vastly smaller number, but arguably the better estimate of losses to US firms. Then I’d want to know how much innovation did not occur because China did not pay for the IP it stole. And how much the stolen IP helped the Chinese people. Tyler’s recent book emphasizes the importance of the long run, which might help to explain why he puts more weight on this issue than I do. You can argue that IP protection promotes growth, but others have argued the exact opposite, at least when the protections are too strong. I’d want to know how much the Chinese theft of IP increases the chance of China going to war against another country. Or by making China richer does it make them less likely to go to war? And by making China richer, does it make China less authoritarian in the long run? Without answers to these questions, how can I possible evaluate how much effort the US should put into stopping the Chinese theft of US IP? I need data.
Just to be clear, I think it probably makes sense for Americans to put some effort into IP protection. I recall that recently the US almost destroyed a major Chinese firm that had violated US sanctions policies (before President Trump gave them a reprieve). We are quite capable of punishing individual Chinese firms that violate the rules that we set up. (In this case it was a rule that almost all other developed countries reject—but we don’t care about that.) I have more trouble seeing the value of a blunt instrument like a trade war. I doubt the benefits will end up outweighing the costs. And by the way, wouldn’t it be helpful if the US government also started obeying the laws, and adhering to international agreements that it signed, such as NAFTA? (And no, I’m not denying that the US does better than China on rule of law, free markets, etc.)
Here’s a question for those who think American industry is being devastated by Chinese IP theft. How would the US stock market react to a sudden agreement that ended the threat of trade war, at the cost of Trump achieving only minor concessions from the Chinese? Would stocks plunge in disappointment about us not doing anything about IP theft? I doubt it; I think stocks would rise on the news. Admittedly, the market test is not the only one that matters; there may be military considerations as well. But it’s worth thinking about when trying to evaluate plausible estimates of economic damage from IP theft.
PS. Trump recently tweeted that it was “crazy” for the US to be spending so much on the military. I agree, and I hope this is a change of heart on his part. Our military is vastly superior to any other.
PPS. The $1 trillion figure was pulled out of the air. I have no idea how big a problem this is, but suspect the actual numbers are smaller.
READER COMMENTS
Mark
Dec 5 2018 at 9:11pm
It seems that China is acquiring IP in a lot of different ways and many people are not particularly rigorous in differentiating between them. Some things like hacking we can all agree are bad, but many people seem to think that things like forced technology transfer or buying technology is bad too. However, it seems to me that these sorts of policies actually increase the incentives to develop valuable IP, because a company would then be able to sell that IP to Chinese investors or exchange it for valuable market access. By making it harder for Chinese companies to invest in and buy American technology, we are making developing IP less profitable and thus discouraging innovation.
Roger Barris
Dec 7 2018 at 9:28am
“…or exchange it for valuable market access.” The point is that, under the WTO rules that China accepted when it joined, market access should be open. Period. There is no requirement for a quid pro quo. When has the US ever turned to China and said: “We will allow you to sell goods into our country or make an investment here on the condition that you share your technology?”
P. Burgos
Dec 10 2018 at 7:50am
Well, I guess we now have precedent to do so if China ever develops any really valuable technology.
Duncan Earley
Dec 5 2018 at 10:41pm
Does any one have a specific example of what is meant by IP theft in this case?
I take it to mean Chinese firms are using patents in products without paying for the rights, but then if they want to sell those goods in the US (or any country) couldn’t the makers be sued by the Patent holders?
Ian Maitland
Dec 6 2018 at 6:46pm
Not if the patent-holder wants to do any business in or with China.
It is called extortion.
Scott Sumner
Dec 5 2018 at 11:07pm
Mark, Good point, I was not referring to the sharing of technology as a condition for investment in China. That’s certainly not theft, and is likely a good thing.
Duncan, I assume it also refers to technology secrets acquired through spying in the US. But I’m not an expert in this area.
Benjamin Cole
Dec 5 2018 at 11:20pm
Interesting post, maybe I even agree. Sometimes principles have to be set aide, as a practical matter.
On the other hand, Scott Sumner is often doctrinaire, highly principled—even to the point of extremism—on the issue of banks, lending and “moral hazard.”
Ironically, the People’s Bank of China has bought trillions in bad loans from the Sino banking system over the last two decades, and until recently, “automatically” bought sour Sino corporate bonds (reports Moody’s). The Sino way has the advantage of keeping the Sino banking and financial system solvent. The US-way resulted in a collapsed banking-financial system 2008. China kept growing though the Global Financial Crisis of 2008—Western economies did not.
Maybe the overt contempt the Communist Party of China shows for some Western economic principles—such as “moral hazard” or “intellectual property” —makes practical sense.
Alan Goldhammer
Dec 6 2018 at 8:22am
Very good post and the skeptical questions are key here. One book which covers part of this issue in great detail is Beth Macy’s “Factory Man” that details how China pirated furniture designs and sold stuff back to the US below cost. John Basset fought a years long battle against this and was ultimately successful. Unfortunately, the North Carolina/Virginia furniture industry with a couple of small exceptions disappeared and Chinese made goods took over the market.
Oleg
Dec 6 2018 at 9:29am
I generally agree re IP “theft.” IP law is a state-enforced monopoly granted to private actors in respect of non-rivalrous goods. It may well be that there is some social utility to having “limited” periods of such monopoly to encourage production of intellectual property, but, given the way governments and lobby groups work, this protection is far too long. The current length of protection may well be a drag on general welfare. I think the “may well be” is more like “is certainly.”
What is far more depressing re the attitude of people generally, even libertarians, to China is the apparent indifference to the fact that it has been and remains an authoritarian state. A little less brutal than it used to be, to be sure, but when “used to be” includes what was the greatest mass murder in human history, by far, clearing that bar isn’t really much of a reason for praise. More than a billion people live under a regime that doesn’t afford the most basic liberties: speech, thought, assembly, association. The only reason there is (some) basic economic freedom appears to be just to keep the population pacified.
We don’t care? Really? Why? Is it because they’re Chinese? Not really full humans anyway, so why worry, right?
Hazel Meade
Dec 6 2018 at 10:26am
I think the key difference is that IP is much more clearly an arbitrary construct of government. It may serve a utilitarian purpose, but it’s not a “natural right”, or grounded in any moral theory of justice. So when people talk about IP theft they aren’t talking about a moral violation like stealing someone’s car. IP is also a non-rival good, you can make infinite copies of videos or patented designs and that does not prevent the original owner from using it. So the harm caused by IP “theft” is more on the order of jaywalking – you broke a rule, but maybe not a single car even had to slow down because of it. The indirect harms caused by potential losses to investors or downsteam lack of innovation are remote enough that it’s hard to tell how much if any harm is actually caused by it. We don’t seem to be in a period where people are failing to invest in new technologies because they think they won’t make enough money, due to IP theft. if anything people are making so much money off of their IP that there are entire cottage industries of “patent trolls” that exist purely to make money by charging people legal fees to defend dubious IP rights.
Scott Sumner
Dec 6 2018 at 11:57am
Alan, I think the US benefited from those furniture imports. And surely patents should not apply to the design of furniture. That goes way beyond the original intention, which was to spur invention of new products.
Mike
Dec 6 2018 at 3:35pm
How did South Carolina fare from those furniture imports? Any distributional impacts at all? I think we can safely say the rising tide lifts all boats and comparative advantage models are broken beyond repair.
Alan Goldhammer
Dec 6 2018 at 3:36pm
The furniture designs were copyrighted. Do read the book. John Bassett spent some number of years trying to get the Department of Commerce to bring action against the Chinese company that was pirating the designs. There was some good ‘espionage’ as to how they finally identified the exact factory in China that was manufacturing the furniture.
One can certainly argue about the arbitrary extension of copyright life (the “Mickey Mouse” extension) but shouldn’t designers have some finite right to their designs?
Hazel Meade
Dec 6 2018 at 4:17pm
What utilitarian purpose does granting monopoly rights to sell tables with particular leg shapes serve society?
What do the rest of us get out of that deal?
Alan Goldhammer
Dec 6 2018 at 5:39pm
You could ask the same thing about writers and musicians.
Scott Sumner
Dec 6 2018 at 7:08pm
Alan, By your logic we should allow recipes to be patented. They can be “creative”.
Alan Goldhammer
Dec 7 2018 at 9:09am
@Scott Sumner – recipes by definition cannot be copyrighted as they are mere listing of ingredients. Copyright law is pretty explicit about what can and cannot be copyrighted (of course the courts are the final arbiter as they are in lots of other IP cases). Now you and Hazel Meade may not like what the law states but the remedy has to be a legislative one. As I noted in one of my earlier posts, I object to the random extension of copyright life as totally out of line but I acknowledge the right to protect innovation whether it is in the sciences or arts as long as the appropriate definitions are met.
Hazel Meade
Dec 7 2018 at 10:31am
Well, Alan, we’re not in this trade war with China because Trump wants to change US copyright law. We’re in it because – well, we’re in it because Trump wants to keep Chinese products out of the US, but in some theoretical sense (probably invented by people who are trying to rationalize Trump’s policies) we’re supposed to be in it because china is stealing our IP – in other words we’re asking China to change IT’S legislation to uphold our IP laws, even when those IP laws are not obviously morally justified.
It’s quite an circuitous route from “the law is the law” to “China must uphold our IP laws” to “therefore we should impose tariffs on Chinese products until they respect our IP”, to then go back and acknowledge that “well maybe some of our IP laws are bad”. If we think some of our laws need to be changed, we shouldn’t be trying to shove them down China’s throat.
Thaomas
Dec 6 2018 at 11:58am
I agree with your observations and wold add another. The mechanism for the “theft” is in many cases restrictions on imports or investment that is is legitimate for the US (and better still for the US and others) to object to. The current administration’s blunderbuss approach (if that does not interpret it too charitably) makes it difficult to focus on policies of the Chinese government that we ought to want to see changed.
Daniel Klein
Dec 6 2018 at 1:09pm
Is “IP” P?
Scott Sumner
Dec 6 2018 at 7:09pm
That depends on the legal regime. In my view some should be, in other cases it should not be.
hgfalling
Dec 7 2018 at 4:58pm
Maybe this was a P/NP joke?
Justin
Dec 6 2018 at 2:45pm
The big issue here is geopolitical. This isn’t Madagascar stealing Disney movies. It’s a superpower stealing strategically important technology. I realize you like the Chinese an awful lot Scott, I like them too, but China can’t be treated like any old country, not while the US is running a global empire (if it should be is another question). If you’re the US permanent government, you want to maintain an edge over China in strategic industries: arms, material science, cryptography, processors and suchlike, while at the same time protecting the profits of the US oligarch class by maintaining a high level of trade with China, and high levels of immigration from China (Chinese workers are absolutely key to keeping white-collar payroll costs from exploding). This is a daunting task that demands raising the cost of technology theft, which has been massive and is well documented. This response is totally rational for the game US leaders are playing, which may be a different game than the one you would rather was played.
Scott Sumner
Dec 6 2018 at 7:11pm
You said:
“which has been massive and is well documented.”
Please link to the documents.
Duncan Earley
Dec 6 2018 at 10:52pm
Yes… is there an example of what technology has been stolen?
Ruth Fisher
Dec 29 2018 at 1:08pm
https://www.theamericanconservative.com/articles/the-unreal-scope-of-chinas-intellectual-property-theft/
Michael Stack
Dec 6 2018 at 2:53pm
For non-rivalry goods like IP, we need a word other than “theft”. I agree that taking IP without permission can be bad, but it is nowhere near as bad as taking something that is rivalrous in consumption. The arguments against taking of IP without permission have to be purely consequential.
Media conglomerates are in essence equivocating when they call it theft, and we should not be fooled.
It’s funny too because our ancestral brains never had to deal with this problem so we are not equipped to deal with it – our emotions are not to be trusted here.
Todd Kreider
Dec 6 2018 at 8:07pm
For non-rivalry goods like IP, we need a word other than “theft”
U.S. law doesn’t mention theft and uses “violation” of copyright.
paul
Dec 6 2018 at 3:01pm
OK there’s a lot of complicating factors here. If Chinese consumers were “stealing” US movies and TV shows, music and online fiction, I don’t think that would bother people much. But there is a subtext that the IP being taken is by the Chinese Government and more oriented toward strategic advantage, especially military and high-tech.
Hazel Meade
Dec 6 2018 at 4:56pm
The US already has very strict laws about transfer of any technology that might have a military use. Read up on ITAR and “dual use” technology. It would be extremely illegal for American companies to manufacture anything in China that has a military application. It happened once with respect to rocket technology, and cost Space Systems Loral $20 million.
https://en.wikipedia.org/wiki/Intelsat_708
DF
Dec 6 2018 at 3:05pm
> How much was stolen by the Chinese government to boost their military power?
Scott, the answer to this is: the entirety of what was stolen. This is how China thinks about great power conflict, assume otherwise at your own peril. Consider lessons learned from the failure of the Soviets, specifically, to beat America you must become a military AND economic power. Consider the Kingdom of Qin, which purposely chose a path of austerity in economic development to dissuade others from plundering it, and also to entice its young men to go to war with other Kingdoms. It would not be the correct strategy today, but the fact remains the Chinese state uses all levers (even economic ones, especially economic ones!) at its disposal in its aims for conquest and domination. The Kingdom of Qin went on to conquer all the Chinese kingdoms and gives China its name.
Hazel Meade
Dec 6 2018 at 5:13pm
Remind me again. How many countries has China recently invaded?
DF
Dec 6 2018 at 5:22pm
You do understand when China invades it never leaves, right? That part of the world becomes a part of China. The Great Wall used to define the boundary of China, now it’s comfortably inside.
Mark
Dec 7 2018 at 7:21am
That’s because the Mongols and Manchurians living north of the Great Wall conquered China and then assimilated into the larger Chinese population.
DF
Dec 8 2018 at 10:45pm
And what’s your explanation for southern China, the Tarim Basin, Yunnan, Tibet, Taiwan and the South China Sea?
Scott Sumner
Dec 6 2018 at 7:13pm
You said:
“Scott, the answer to this is: the entirety of what was stolen.”
And how do I know that’s not trivial?
DF
Dec 8 2018 at 10:43pm
By being in a business that the Chinese are trying to dominate. Unfortunately, being an American professor may not qualify you.
P Burgos
Dec 10 2018 at 8:07am
@DF
The interesting thing about Chinese IP theft and its “Made in China 2025” initiatives are that as of right now, they are likelier to hamper the geo-political ambitions of China’s than to help them meet their goals. I find it difficult to tell whether or not they are intentionally or unintentionally about further entrenching the power of the party over the economy and about rewarding cronies of the government. It just looks a lot like something Putin would do if he were in charge of China. And anyway, China’s population of entrepreneurial age adults is going to be falling, while that in North America will be rising. And North America’s population will keep rising, while that of China will fall, because China isn’t really set up to accept immigrants as Chinese.
I think that the surprising thing is that China thinks that they can genuinely challenge the West for global dominance while rejecting so much of what gives the West its strength.
William
Dec 6 2018 at 3:05pm
I don’t understand “In [case #3], US firms would be no worse off than if China did not exist.” This seems preposterous. For instance, I was in the market for some golf clubs. A U.S. company had spent money designing and testing a set that sold for $1200. A Chinese company had stolen the design, paid no royalties, and was selling the identical product for $400. If I buy the Chinese version, the US company is clearly worse off for this happening.
This has happened in nearly every market, talk to anyone who makes anything.
Michael Pollinger
Dec 6 2018 at 3:30pm
I think you really overlook the impact of IP theft (and trade with China in general) on US high wage jobs, and the impact on small business vs big business and therefore domestic inequality and job creation.
Listed corporations are much more likely to either source from china, operate in China, or sell to China than small business, so are much more willing to accept IP theft as part of a deal to retain market access to China. Small firms are driven out of domestic markets because they can’t compete on cost with large firms that source from china, eliminating lots of medium skill medium to high wage jobs.
In an environment in which IP is likely to be stolen, “creative class” workers have a lower marginal revenue product and so are paid less.
I also notice that you use the entertainment IP example instead of examples of Chinese firms stealing ip, rushing to patent it, and then suing the American company that they stole it from for patent infringement.
Hasdrubal
Dec 6 2018 at 5:50pm
For examples, the theft that I’m most familiar with and assume people are worried about is the result of companies that are hired to produce a product in China that, then, produce an identical copy of the product and sell it under their imprimatur for a lower cost since they don’t have to recoup the development costs. The canonical example of this is Huawei selling copies of Cisco network products. (Some of the early versions actually showed the Cisco logo when you logged in.)
It’s probably a lot more common for small producers to run into this problem, in fact, “Your producer becoming your competitor” is a recurring theme on the China Law Blog.
My concern with China’s disregard for IP is that it acts like a price increase for small producers: You either spend extra in search costs to find a low cost producer outside China, or you spend extra on oversight costs (with no guarantee of success) when hiring a producer in China, or you end up competing with your own factory. It’s not necessarily a big cost for large companies, but that’s got to be hard on small innovators.
Godfree Roberts
Dec 6 2018 at 6:36pm
Alas, there is not the slightest evidence that China stole anyone’s IP. Allegations that it did seek to disguise the fact that, as a percentage of GDP, we’ve cut R&D by 50% since 1980, while the Chinese have increased theirs by 1200%.
China is a minor infringer of IP compared, say, to South Korea. Bill Gertz’s book, “Betrayal: How the Clinton Administration Undermined American Security tells how the Administration transferred cutting edge nuclear, military and other technology from classified status to Commerce and then openly sold the technology to China. GE transferred its aerospace and its imaging IP to China in exchange for market access, and GE is just the tip of the iceberg. All were short-term decisions now coming back to haunt us.
To check the record, start at the US premier venue for IP cases, the Federal Court’s Northern District of California, where most complainants will file suits against Chinese entities. A database of Intellectual Property Cases can be found here: dockets.justia.com/browse/circuit-9/state-california/court-candce/noscat-10.
For the WTO’s international forum for Trade-Related Aspects of Intellectual Property Rights, TRIPS, start here: http://www.wto.org/english/docs_e/legal_e/27-trips_04d_e.htm
For Chinese IP court filings and decisions is here: chinaipr.com/category/beijing-ip-court/. It’s a fast-moving scene but most sites have free subscriptions that will keep you up to date.
Ian Maitland
Dec 6 2018 at 6:57pm
“How much was stolen by the Chinese government to boost their military power, and how much by private firms for selfish reasons? How much would it cost the US to stop Chinese firms from stealing IP? I’m not seeing any data from the proponents of cracking down on China. I don’t expect precise numbers, but one can’t argue that it’s clearly a massive problem without at least some numbers.”
I’d like to see some numbers too, but I don’t agree that the burden of producing those numbers should be on the proponents of cracking down on China. Everyone can agree that the scale of Chinese industrial espionage is vast, and that may just be the tip of an iceberg. So the burden properly belongs to the advocates of business as usual.
dede
Dec 11 2018 at 9:49pm
“I don’t agree that the burden of producing those numbers should be on the proponents of cracking down on China”
What? Somebody accuses somebody else on the “vast scale” of something (I still do not understand what that thing is because I still have not figured out how to understand any nonesense pronounced by Donald Trump) and the burden of proof about what is something or its scale is on the people who are asking what is the accusation about?
If I accuse somebody of having stolen something in a shop, I am not sure the police will not ask me what was stolen and in which shop…
Pat Gillett
Dec 6 2018 at 7:40pm
“But right now I’m having trouble seeing things Tyler’s way on intellectual property (IP) theft:”
I assumed Tyler was talking about SCS, not IP. That seemed to fit the narrative of his post.
Scott Sumner
Dec 7 2018 at 12:58pm
China has stolen SCS? Please explain?
Patrick Gillett
Dec 13 2018 at 4:20am
South China Sea – though it’s arguable whether the theft has been successfully completed yet!
Matthias Goergens
Dec 6 2018 at 9:07pm
Compare the Chinese case today with the German case in the 19th Century: No Copyright Law – The Real Reason for Germany’s Industrial Expansion?
There were a bunch more articles spawned by the underlying academic paper. Basically, Germany at the end of the 18th / start of the 19th century went through a Golden Age. Germany did not exist as one political entity, hence no effective intellectual property laws, but instead we got giants of literature like Schiller and Goethe. The German economy started to industrialise and to catch up Britain.
And Britain wasn’t harmed in the process.
(Historical aside: Made in Germany stems from a bit later in the catch up. Germany was initially exporting lots of shoddy products to Britain. The Brits tried to force a mark of shame onto those product, but that soon turned into a mark of pride. From Wikipedia:
jorod
Dec 6 2018 at 10:02pm
I guess if you don’t care if stock prices fall because China is stealing profits as well as IP, then you probably don’t mind if your IRA losses money too.
jorod
Dec 6 2018 at 10:04pm
loses
Scott Sumner
Dec 7 2018 at 12:59pm
Stocks fall a tiny bit when China steals IP, they fall a lot when we launch a trade war. I keep my eye on the ball.
Len White
Dec 7 2018 at 12:41am
In scenario #3, where stolen data are industrial secrets, there is a huge cost to the companies being stolen from. Such US companies lose a great deal of competitiveness when the IP is stolen and when Chinese companies can then undercut them with lower prices, having not incurred said R&D costs, and thereby driving the US companies out of business by not letting the US companies recoup their R&D costs.
You also reduce incentive to invest in R&D for fear of it being stolen by other countries and you having no recourse to prevent it.
Just imagine the devastating effect on the US pharma R&D if there were no restrictions on importing foreign drugs made from stolen US IP. With drugs, you can make the decisions on a drug by drug basis, but with how interconnected the global supply chain is with chip manufacturing, it’s impossible to do it on a company-by-company basis aka Huawei/ZTE. These two were only targeted because they were big and had overseas presence. Thousands of Chinese firms benefiting from stolen IP do not have an overseas presence and are not easily punished or even detected. In this case, pressure needs to be put on the Chinese government to do something about it.
Charles
Dec 7 2018 at 12:49am
I think it is difficult to put a number on the value. How much is Pax Americana worth? Should the numbers be adjusted for risk? If so, how risk averse are we?
If military technology is stolen that gives the mainland confidence they can eliminate the democratic government of Taiwan with minimal loss of life, what is that worth?
If they can do it with stolen advertising/propaganda tools, what is that worth?
What is the cost of a second cold war if they become nearly equal?
I assume that companies only enter the forced joint venture arrangements because they expect it to be more profitable than staying out completely. This is consistent with the idea that an escalation of the trade war would be bad for stocks. However, the companies may be more profitable if China were more liberalized. In this context, the trade negotiation looks more like collective bargaining. No one company would want to advocate for the change publicly alone.
Laura
Dec 7 2018 at 12:53am
chinese uni uses their undergrad and graduate students to reverse engineer US semiconductors. Leading these efforts writes the ticket of many so called PhD. Not research just copying.
this is what takes the place of real learning. Yes, they trade their future away to do this—the students who do this work are literally copying drawings not learning the engineering to do something new.
the student are scammed. They don’t get paid for their work and they don’t get an education.
Various
Dec 7 2018 at 2:13am
Oh for gosh sakes Scott, I think you’re splitting hairs. $1 trillion dollars of IP theft regardless of what form the theft takes, is still $1 trillion in lost value to the victims. What difference does it make what exactly is being stolen?
Scott Sumner
Dec 7 2018 at 1:01pm
No it isn’t, please read my post again. It explains why.
Mark
Dec 7 2018 at 8:00am
There is a post on Marginal Revolution about occupational licensing today and I am thinking more that occupational licensing is the right analogy for IP. In both cases it is not traditional private property but government enforced monopoly that should be intended to use temporary monopoly profits to encourage people to invest in developing or improving the quality of products or services, but can be abused to shut down competition.
In some sense, the best analogy of China’s IP infringement might be something like Uber running unlicensed taxis; it might be unfair competition because the competitor did not have to put in the effort to get the IP or license, but it is not theft and is frequently utility-maximizing if the IP or licensing laws were too strict to begin with (as they usually are due to concentrated producers having more political power than diffuse consumers).
Roger Barris
Dec 7 2018 at 9:32am
“Then I’d want to know how much of that stolen IP would have been purchased by China if theft were not possible. That’s likely a vastly smaller number, but arguably the better estimate of losses to US firms.” Scott, you seem to be leaving out one issue: what about the harm done to US companies when their stolen IP is used to compete against them by Chinese firms? Isn’t the greater of (1) the foregone purchase price or (2) the cost to a US firm of a new competitor “the better estimate of losses to US firms?”
Scott Sumner
Dec 7 2018 at 1:03pm
You are confusing loss to US companies with loss to the US. Don’t forget that consumers gain.
Dustin
Dec 7 2018 at 12:21pm
China has agreed to operate within a set of internationally observed economic norms
China is acting in direct contravention of it’s agreement and these norms
These actions have demonstrably harmed US interests
Ergo, the US at least has a case, in principle, for taking action against China. Now we consider the long-term cost / benefit of that action to evaluate how sensible it is.
But you admittedly have no clue as to either the cost or the benefit, nor do I, so it’s unclear what we’ve accomplished.
Scott Sumner
Dec 7 2018 at 1:05pm
Dustin, OK, but would you agree that the US also violates the international norms to which it has signed on to? What about the NAFTA agreement, which we are violating? Should America be punished by the rest of the world?
Scott Sumner
Dec 7 2018 at 1:07pm
Everyone, I asked for empirical evidence that this was a serious problem. We now have nearly 50 comments, and no one has given me a shred of empirical evidence. Not a single study. I find that interesting.
WalterB
Dec 11 2018 at 11:07pm
That study will be published concurrently with the one giving evidence of massive voter fraud.
Dallas Weaver Ph.D.
Dec 7 2018 at 3:57pm
You can divide IP into “real deep knowledge based IP” such as detailed scientific inventions and “fluff stuff” like “mickey mouse” or the business methods or “single click” IP. The latter is obvious and easy to “borrow” and the owner could and do object. I don’t care that much as the outcome is usually just rent-seeking with little contribution to humanity.
However, in the case of “real IP”, if you don’t have the knowledge base you can’t even steal it. You could give the detailed IP for the F-35 to all the countries in the world and only a very few could, even, in theory, make the plane. You can’t steal what you don’t understand.
If you have the ability to steal and utilize “real IP”, you also have the ability to create your own inventions. Why copy the obsolete designs of others rather than creating improvements. If you copy, you are always behind the curve.
Modern technology is so complex that the associated IP is all about people who understand the technology and China produces more STEM graduates in two weeks than we do in a year. Guess who will win the real IP game? Meanwhile, we demand that the new Ph.D. STEM graduates from our universities who are from China go home after graduation.
Most of the discussions about IP theft are by people who don’t have a strong enough STEM background to really understand what they are talking about. Even Tylor with his deep understanding of economics doesn’t understand that the “tree of knowledge” is producing more fruit than ever in history, but to reach it requires “standing on the shoulders of giants”.
To even be able to stand on the shoulder of giants requires being able to read primary references in the area and I would like to drop the challenge to the readers to pick up the Reports section of Science Magazine (AAAS Journal) and see how many refereed articles they could read and understand. When you stand on these shoulders you can see tons of what appears from your lofty perspective “low hanging fruit” for the picking.
Scott Sumner
Dec 7 2018 at 6:16pm
Dallas, Thanks, interesting comment.
Jim Stevens
Dec 8 2018 at 12:03pm
When I worked for a major oil company, I saw several types of I.P. theft committed by Chinese companies and individuals. A clear cut example is the time a Chinese company hired us to build a coal gasification unit. A few years later we were called back to trouble shoot problems with a second identical unit they had built in violation of the contract they had signed. These are billion dollar plants.
A few years later we hired a Chinese national to work as a lab technician. After we had fired her for safety violations, we found dozens of confidential reports regarding Chinese petroleum resources that had nothing to do with her lab work. A short time later she was seen working in another company facility and had to be escorted out.
We had other intrusions, but I was never aware of a concentrated effort in preventing I.P. theft by Chinese nationals.
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