Trump's Fixation on Intellectual Property Rights Serves the Rich
President Trump and China's President Xi Jinping attend a state dinner at
the Great Hall of the People on November 9, 2017, in Beijing, China.
President Trump and China's President Xi Jinping attend a state dinner at
the Great Hall of the People on November 9, 2017, in Beijing, China.
Thomas Peter - Pool / Getty Images
By Dean Baker, TruthoutPublished July 15, 2019
Between making threats of actual war with North Korea and Iran, Donald Trump
has also gotten us into a trade war with China. Trump's ostensible reason
for this trade war - the large US trade deficit with China - actually did
have some basis in reality, but in practice the trade war is straying into
turf that is likely to offer few gains for US workers and could actually
lead to sizable losses.
A major theme in Trump's campaign was that China is a world-class currency
manipulator that deliberately keeps down the value of its currency to give
its products an advantage in international trade. The basic story is true;
China did intervene heavily in currency markets to keep the value of its
currency from rising against the dollar.
However, it would probably be more appropriate to say that China managed its
currency rather than manipulated it. There was nothing hidden or sneaky
about China's intervention; it has an official exchange rate that it acts to
maintain.
Most economists acknowledge, in retrospect, that China managed its currency
in the last decade (they didn't at the time), but now say that China has
stopped buying large amounts of reserves of foreign currencies, the tool
used to suppress the value of the yuan. What these economists ignore is that
China continues to hold massive amounts of reserves, which lowers the value
of the yuan relative to its value if China held more normal amounts in
reserve.
China's reserve holdings have the same effect on the value of its currency
as the Fed's asset holdings do in keeping down long-term interest rates.
While most economists acknowledge the impact of the Fed's asset holdings,
for some reason they ignore the impact of China's reserve holdings. No one
ever said economists were consistent.
By keeping its currency below market levels, China makes its products more
competitive internationally. This allows it to continue to run large trade
surpluses, even though a fast-growing country like China would typically be
expected to run large trade deficits.
By increasing the enforcement of intellectual property claims, both in the
US and overseas, our government is redistributing even more income to those
at the top.
If Trump focused on currency, he would likely be able to reach an agreement
with China, which would reduce its trade surplus with the United States.
This would create more jobs for US manufacturing workers, which would likely
be a boost to the large segment of the work force without college degrees
(roughly two-thirds).
But currency seems to have largely slipped off Trump's trade war agenda.
Instead, he is pushing for policies like requiring China to show more
respect for the intellectual property claims of US corporations. That may be
good for Boeing, Pfizer, Merck and other companies that are heavily
dependent on intellectual property for their profits, but it is bad news for
most American workers.
There are three reasons that most workers should not want to see Trump win
his battles on intellectual property. The first is obvious. If major US
companies know that they can offshore operations to China without having to
worry about transferring technology to China (a frequent complaint), they
will be more likely to offshore operations to China.
The second reason is a tiny bit more complicated. If China has to pay Merck
and Microsoft more money for their patents and copyrights, it will have less
money to spend on other US goods and services.
The way this works out practically is that, other things being equal, the
money China needs to pay Merck and Microsoft, will increase their demand for
dollars. That will raise the value of the dollar against the yuan, making
other US goods and services less competitive than if China was not paying
Merck and Microsoft for their intellectual property.
If we had some mechanism for sharing research costs across countries, then
new drugs could sell for a few dollars per prescription, instead of a few
thousand.
The third point is that by increasing the enforcement of intellectual
property claims, both in the US and overseas, our government is
redistributing even more incometo those at the top. If you need a visual aid
to understand this point, think of Bill Gates, one of the world's richest
people. If the government did not threaten to imprison anyone who made
copies of Microsoft software without Gates's permission, it is likely that
he would still be working for a living.
Economists often talk about how technology is rewarding people with
technical skills in areas like computer science and biotech. That's a lie.
It is our intellectual property policy on technology that has explicitly
structured the market to give more money to the Bill Gates crowd. Trump's
China policy seems to be a further step in this direction.
An agreement crafted to help workers would instead focus on sharing
knowledge and technology. China, along with India, Brazil and many other
developing countries, has actually been pushing in this direction in the
case of pharmaceuticals. If we had some mechanism for sharing research costs
across countries, then new drugs could sell for a few dollars per
prescription, instead of a few thousand.
There is a similar story with clean technology. China has more installed
wind and solar power than the rest of the world combined. It also sells more
electric cars. A forward-looking administration would be negotiating ways
that we could share these technologies as quickly as possible.
But that will not happen with Trump. Instead, he is likely to construct a
deal that will be great for a small number of rich people and pretty awful
for everyone else. And, he will tell us that it is "terrific
