Chinese officials announced new reforms earlier this month aimed at punishing individuals and companies accused of intellectual property theft after a meeting at the G20 that Donald Trump described as a “BIG leap forward!” for relations between Washington and Beijing.
Putting aside the unfortunate choice of words, we should be skeptical of the back and forth rhetoric made during trade negotiations. Instead, we should dispassionately and critically examine the role IP plays in the global economy and take time to examine all of the ways China is playing nice when it comes to IP “theft.”
For an example of the zeal applied to punishing and denouncing IP theft, take the case of Renopharma, a company co-founded by American citizen Yu Xue. Earlier this year Xue pleaded guilty to stealing trade secrets from her employer GlaxoSmithKline to develop and market anti-cancer drugs in China. In a scathing press release announcing the guilty plea, the prosecuting U.S. Attorney specifically calls out the Chinese government for its involvement:
“Dr. Xue used her position at GSK to steal valuable trade secrets to benefit a company bankrolled by the Chinese government,” said U.S. Attorney [William M.] McSwain. “We cannot allow U.S. citizens or foreign nationals to steal sensitive business information and hand it over to competitors in other countries. This sort of economic warfare presents a danger to our economic security, jeopardizes America’s position as a global leader in innovation, and will not be tolerated.”
The elevation of IP theft as a major point of contention in trade negotiations may be due to the outsized role these corporations play in Washington, as IP-intensive industries like “big pharma” and, increasingly, “big tech”, help write the rules of the economy to the detriment of firms and workers that would otherwise use ideas to advance their own wellbeing.
While officials in both countries make the issue seem enormously consequential, there is no strong consensus on whether or not Chinese IP theft poses such a significant “danger” to the American economy. While the widely cited 2017 IP Commission Report estimates the annual overall cost of IP theft to the U.S. economy at $225 to $600 billion (though the latter figure is a high-end estimate), the 2018 U.S. Chamber International IP Index ranked China 25th out of 50 countries reviewed for economies exhibiting effective IP architecture as defined by 40 indicators in 8 categories including pharmaceutical-related patent enforcement and resolution mechanisms, protection of trade secrets, and digital rights management legislation.
This ranking places China ahead of important American trade partners like India and Brazil and even geopolitical allies like Turkey and Saudi Arabia. Additionally, the report specifically cites China’s strengthening of patent and copyright enforcement as well as “strong efforts to raise awareness of and leverage value of IP rights in academic and private spheres” as positive developments.
So what is the truth? Is China waging “economic warfare” against the U.S. in the IP realm or is the issue simply a flashpoint in the larger tussle over trade?
The answer as to whether the Middle Kingdom’s IP theft is detrimental to economic growth overall is probably somewhere in the middle. IP theft does cause very real financial harm to firms, but because so much of the wealth derived from intellectual property is built on economic rents, it is not clear this is necessarily a problem.
Indeed, greater access to IP turns this so-called theft into a force for equalization and growth in a still-developing country. In addition to giving Chinese firms and workers greater opportunity to participate in the global market, it chips away at the sky-high profits of firms that have profited handsomely from monopoly rights to ideas.