At the heart of the escalation of US-China trade tensions is President Donald Trump’s assertion of rampant “theft” of US intellectual property by China.
But what constitutes “intellectual property” in today’s global economy?
In order to sell goods in China, foreign companies must form joint ventures with local companies, which are usually state-owned in China.
That’s the path General Motors took when it set up shop in China, where it now sells more automobiles than in the United States.
GM, the biggest US automaker, builds most of the cars sold in China in China itself and must share its know-how, or “intellectual property,” with its local partner. The situation is the same in other sectors, whether the aerospace, electronics or industrial machinery.
China has managed its interactions with foreign companies in this manner since joining the World Trade Organization in 2001, even though such arrangements are not permitted.
A 2013 report by the Commission on the Theft of American Intellectual Property said the prime goal of the independent panel was “changing the cost-benefit calculus for foreign entities that steal. American intellectual property.”
The commission, led by former director of national intelligence Dennis Blair and former Intel chief executive Craig Barrett, updated its findings in March, labeling China “the world’s largest source of intellectual property theft.”
The commission’s findings have formed the basis for Trump’s threat to impose tariffs on $150 billion on Chinese goods.
The commission has estimated that theft of intellectual property costs the US economy between $225 billion and $600 billion annually.
Questions about intellectual property are not isolated to US investments in China, but also pertain to Chinese ventures in the United States.
Chinese investments in the United States hit $29 billion in 2017, according to the US China Business Council, down 35 percent compared with 2016 due to limits set by Beijing on foreign investment, especially in housing and hospitality.
The US Committee on Foreign Investment in the United States, an interagency review committee, has taken an increasingly skeptical approach to attempted Chinese acquisitions of US companies.
In January, CFIUS blocked a $1.2 billion takeover of the money transfer company Moneygram by China’s Ant Financial, which is owned by Alibaba.
The committee in September also stopped the acquisition of Lattice Semiconductor by Canyon Bridge Capital Partners, a group funded in part by the Chinese government.
More recently, CFIUS raised worries about the proposed hostile takeover of Qualcomm by rival semiconductor company Broadcom, which is based in Singapore but relies heavily on China for sales.
Some US lawmakers want to beef up CFIUS’ role further.
A proposal introduced in Congress in November would strengthen the committee’s ability to block not just mergers, but also investment stakes by Chinese interests in US companies.