Our trade deficit with China is a serious concern, and President Trump deserves some credit for trying to tackle the problem. But his disastrous tariffs take the wrong approach.
You don’t need to have read The Art of the Deal to know it doesn’t take a skilled negotiator to haphazardly slap tariffs on consumer goods. Not only is the president’s approach ineffective, but his obsessive focus on the trade deficit overlooks much greater threats China poses to our prosperity.
Chief among these threats is Chinese state-coordinated theft of intellectual property and the use of such property to assert technological dominance over other counties. In 2017, the Commission on Theft of American Intellectual Property estimated that the U.S. economy loses $225 billion to $600 billion annually because of Chinese theft of IP from U.S. agricultural research firms, pharmaceutical companies, and electronics manufacturers. Though the Department of Justice has been able to prosecute select cases of theft, their current efforts have had a limited impact on the growing problem.
While economic espionage accounts for significant domestic financial losses, Chinese requirements for foreign investment also contribute to the problem. The Chinese government often requires foreign businesses hoping to operate within China to join with a local partner, effectively forcing international firms, including American businesses, to share technology in exchange for market access. Businesses who choose not to operate with a local partner often face tariffs on exports to China. As a result, companies eager to gain access to the Chinese market make a devil’s bargain that trades short-term access for the long-term loss of their IP and trade secrets.
China’s assault on our economy does not stop at economic espionage and IP theft. Their military capabilities extend well into the cyber realm, where they have hacked into university networks to steal military technologies and taken down the network of U.S. Naval contractors.
President Xi has ample opportunity to expand his offensive. As the world’s largest producer of rare-earth metals – which are vital to the defense, energy, electronics, and automobile industries – China could suspend or restrict the export of such materials and upend American manufacturing.
President Trump’s tariffs are no solution to the multifaceted problems we are up against – in fact, they may only amplify these threats as China continues to retaliate. Combating attacks from the Chinese is going to take a much more rigorous and sophisticated approach than we are currently deploying.
First, we need to reinvest in ourselves to maintain our technological and competitive edge. That means taking steps like increasing our investment in basic scientific research and manufacturing innovation, and doing more to support small and medium-sized manufacturers. It also means thinking creatively about approaches to workforce development and training that enhance apprenticeships and public-private training partnerships.
Next, America needs to think differently about how business and government work together to achieve shared prosperity. Under China’s “state capitalism” model, government and business are enmeshed and coordinated in pursuit of an overarching national goal. To counter that arrangement, we must foster a renewed sense of corporate patriotism – particularly from our technology companies.
In the World War II era, partnerships between automakers, scientists, and government helped to turn the tide. Today, we need to get a patriotic pledge from our tech companies that they will not bow to Chinese pressure to turn over secrets, they will safeguard their IP, and commit to protecting America’s interests.
We also need to consider tighter controls on what entities participate in U.S. company and university research and development, as well as more restrictive transfer rules for U.S. companies who may be considering trading American-funded innovation for access to Chinese markets. We can and should provide American companies with new incentives to align their goals with the national interest by revising the tax code to promote reshoring while rewarding domestic hiring and investment.