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OpEdNews Op Eds    H2'ed 5/28/19

Trump's Trade War With China and "Our" Intellectual Property

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US-China Trade War
US-China Trade War
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Some events give extraordinary insights into the biases of the economics profession. The trade war with China clearly fit the bill.

The origins of the trade war can be traced to campaign promises Trump made to go after China over its large trade surplus with the United States, which he attributed to "currency manipulation." The argument was that by intervening in currency markets (buying up U.S. dollars), China was propping up the value of the dollar against its own currency.

This makes Chinese goods and services relatively cheaper to U.S. consumers and makes U.S. goods more expensive to Chinese purchasers. The net effect is to increase U.S. imports of Chinese goods and reduce U.S. exports to China, thereby leading to a large trade deficit.

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While most economists now acknowledge that China was intervening in currency markets in the last decade (they did not acknowledge the currency intervention at the time), they insist that this is no longer an issue. China is no longer a large net buyer of dollar denominated assets, so the argument goes, therefore it is not currently keeping down the value of its currency against the dollar.

As I have argued elsewhere, this argument ignores the effect of China holding well in excess of $3 trillion worth of dollar denominated assets. Its decision to hold a massive stock of dollar assets depresses the value of the Chinese yuan against the dollar, thereby maintaining the competitive advantage from a lower valued currency.

This is the same logic that applies with the Fed's decision to hold trillions of dollars worth of assets that it acquired as part of its quantitative easing program. Even though the Fed is not currently buying assets, most economists argue that its holding of assets still works to keep down interest rates. Perhaps in the next decade they will acknowledge that the same relationship holds with China's massive stock of dollars and the relative value of the dollar and the yuan, but for now they insist that currency intervention was only an issue in the past.

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This is important background, because currency values will directly affect our trade balance with China, and thereby impact the number of manufacturing jobs in the United States. While reducing the trade deficit will not get back most of the relatively high paying manufacturing jobs that were lost in the last decade, it would likely still be a plus for relatively less-educated workers who still rely on manufacturing as a source of higher paying jobs.

Although currency is mostly off the table in Trump's trade war, intellectual property is very much on the table. And here Trump has the support of economists across the political spectrum, who argue that he has a legitimate complaint, even if they don't endorse his go it alone cowboy tactics.

The compliant is that China is not respecting "our" intellectual property. This lack of respect takes two main forms. One is simply not honoring the patents, copyrights, and trademarks of U.S. corporations. The other is requiring technology transfers by U.S. corporations that locate operations in China. This usually means taking on a domestic Chinese company as a partner, which will then gain expertise in the use of the U.S. company's technology.

It is very impressive how the bulk of the economics profession has been willing to legitimate the switch in focus of Trump's trade war. He had run around the country in his campaign denouncing China as a world class currency manipulator. He pledged to take punitive actions against China for its currency practices on Day One of his administration. Getting China to raise the value of its currency against the dollar actually would have provided some benefit to U.S. workers. But now currency is off the table and we are fighting a trade war to protect "our" intellectual property.

If it's not obvious already, it is not "our" intellectual property that Trump and his bipartisan crew of economist cheerleaders are interested in protecting. It is the intellectual property of large corporations like Boeing, GE, Pfizer, and Microsoft. Very few people in the United States are in a position where they have to worry about China using their patents or copyrights without compensation. This is a real concern to many large U.S. corporations. The question is whether it should be a concern to the rest of us.

Most immediately, the concerns of ordinary workers are likely to go in the opposite direction. If companies like Boeing and General Electric don't have to worry about being forced to transfer technology to Chinese companies when they outsource to China, they will have more incentive to outsource to China. That's about as straightforward as it gets. Instead of reducing our trade deficit in manufacturing goods, this change is likely to increase it.

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But this goes to an even deeper issue. We have seen a massive increase in wage inequality over the last four decades. Most economists probably believe some version of the skills biased technical change story that new technologies have placed a greater premium on skills like math, science, and engineering while reducing the value of less-educated workers.

Trump's trade war gives us an insight into the real story. It was not technology that led him to focus his efforts on protecting intellectual property to the neglect of currency issues; it was a political decision made in response to the political power of the most affected groups. And, Boeing, GE, and the rest have far more political power than the workers who labor in their factories or indeed, less-educated workers as a class.

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Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 
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molly cruz

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As to "intellectual property" i.e. ideas; everything we do is based on Chinese inventions of every type. They could retroactively claim dominions over every printed word, every plowed field, every dropped bomb, and the list goes on interminably. So, it's payback time, is it? Priceless! How about we're one species on a planet that needs us all to grow up and graduate grade school; or we'll all lose everything, patented or not? Competition is great as long as its consequences are improvement. Cooperation is better. Without China, We'd be stuck in the Middle Ages.

Submitted on Tuesday, May 28, 2019 at 11:33:42 PM

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Right on molly. China has been at it for 5,000 years. There technology is now going to drown the US's tech companies.

Submitted on Wednesday, May 29, 2019 at 5:46:41 AM

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Paul from Potomac

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Since I am aware of some of our greatest inventions here in the US (I was Chief Technologist at NASA's Inventions and Contributions Board for 16 years where we oversaw every invention and technical achievement in NASA history), I have a sense for what the Chinese can do and what we can do, both together and separately. Whether we could surpass one another depends on a level playing field. It's not level. The business dealings with China have been exceedingly crooked for decades. But our universities actually still lead the world. However, since we need them and they need us to prosper, the message I have for you is that we must work as one to survive. Trump and Xi have been playing a game that may not end well unless each accepts the other as a peer. Such is the conundrum. My advice to both is to bend just enough to take pride in our achievements together.

Submitted on Wednesday, May 29, 2019 at 12:13:52 AM

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David Pear

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Currency manipulation, tariffs, dumping, colonialism, human trafficing, violence, opium, wars and stealing intellectual property is how every Western country developed; and still is. US r&d is heavily subsidized by taxpayers and then the profits go to corporations who charge monopoly prices.

Corporations will sell their grandmothers to meet next quarters earning for the expectations of Wall Street. For the past 50 years plus the US corporations have stagnated what little r&d they ever did. It is now just rent money. How many times can a pharmaceutical company get away with reengineering old drugs to get new patients, and then charge exorbitant prices?

The Huawei fight is not about "intellectual property". It is about the US being able to use 5G technology to spy on everybody in the world. Smart phones, smart TV's, smart cars, smart homes---you are being watched and recorded everywhere you go and everything you say. Huawei closed the back door to their telecom and technology, at least to US spies. That is the beef.

Huawei has given written guarantees that it will not use its products to spy. How about US telecom and tech companies do the same?

US technology is way overrated. It is mostly killing machines, GMO's, and products for clearer skin and whiter teeth.

China is our last hope for survival. Go China, go!

Submitted on Wednesday, May 29, 2019 at 5:35:47 AM

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