Americans of all stripes should be able to unite in support of trade. It’s fundamental to a diverse and healthy economy. Robust U.S. trade relationships around the world are also critical to the national economy.
That’s especially true in California. The state leads the country in exports, totaling $171.9 billion in 2017 according to the Chamber of Commerce. That accounts for 11 percent of all U.S. exports last year, generating over 680,000 jobs. Computer and electronics totaling over 25 percent of the state’s exports, second to Texas. The Patent and Trademark Office says approximately one in every five California jobs is in an intellectual-property (IP) intensive industry. While Mexico is still the number one trading partner, combined exports to China and Hong Kong totaled $28.5 billion in 2017 exceeding total exports to Mexico. Much of this is in IP-related products.
When the national conversation turns to trade or IP, especially as related to China, Californians — and all Americans — should pay attention.
Recent national policy has been focused on “fair trade,” a correct and necessary standard to protect U.S. citizens from abuse. But, instead of targeting the worst abusers, such as China, several current trade agreements and relationships were brought under intense scrutiny, stirring the trade pot and alienating several key allies, risking that the country will not receive their help and cooperation in bringing China’s bad acting to an end.
China’s economic impact on the U.S. towers over that of other countries. The impact on manufacturing alone has been well documented as U.S spending on Chinese goods multiplied over and over during the last 20 years. The impact on the country’s IP has been damaging as well.
More than 15 years ago, a lawsuit by San Jose-based Cisco against Huawei was only one very public example of what the industry knew was happening with some regularity. Via the lawsuit the broader public became familiar with the Chinese playbook: government-backed Chinese companies become partners with a U.S. company, steal its IP and launch a Chinese competitor with government support.
Such economic attacks through the theft of IP, ranging from patents to copyright, have continued. This problem cannot continue to be ignored. However, the current path — threats of higher and higher tariffs — is not the way to handle this challenge. If the cycle of tariff threat and Chinese retaliation tariffs continue then the entire country, not just California or those in technology or IP, will be affected. Such actions could lead to an early recession or worse.
In economic terms, tariffs are taxes placed on imported goods or services most typically hurting the country that has them, by ultimately raising prices in the country that has the tariffs. In turn, customers buy less or have a reduction in their cash a they pay more. Regardless, less is purchased or saved across the economy, resulting in decreases in domestic production and job losses. With free trade, prices stay low on consumer goods and options abound.
A real solution is available. A meaningful agreement filled with specific goals and timetables for the Chinese to meet with regards to forced technology transfer and IP would be a great step. And adding President Reagan’s philosophy of “trust, but verify” would be a vital addition to any agreement. This should be the focus of U.S. deal makers.
President Trump’s agreement to hold off on increased tariffs after a recent dinner with Chinese President Xi Jinping is perhaps a sign that an agreement is in the works. Hopefully that is the case, so that the cycle of tariffs harming U.S. consumers and economy without addressing the real problem of abusive and discriminatory Chinese trade practices will end.