Donald Boudreaux: Chinese IP 'theft' doesn't justify Trump's tariffs

Among the most politically potent arguments for President Trump’s punitive tariffs on your, my and other Americans’ purchases of imports from China is the claim that these tariffs are a tool for reducing Chinese theft of Americans’ intellectual property (IP).

While IP theft in China does occur, as my Mercatus Center colleague Daniel Griswold and I argue in a recent paper, this theft provides far less justification for Trump’s tariffs than is commonly believed.

First, the extent of such theft is overblown. Much of this “theft” is in fact in-kind taxation. Beijing requires that certain foreign companies seeking to do business in China share their intellectual property with the Chinese. Companies that attach a high value to the opportunity to do business in that large country often agree to these terms. But IP belonging to companies that are willing to forego the opportunity to operate in China is not stolen or otherwise acquired by the Chinese.

This in-kind tax is unfortunate. But IP acquired through it no more counts as stolen property than does cash paid in taxes to Beijing (or, for that matter, to Uncle Sam) count as stolen property.

Like all taxes, Beijing’s requirement of IP sharing discourages foreign companies from doing business in China. And so by making China a less-attractive place to invest, this in-kind tax reduces China’s rate of capital accumulation. In turn, worker productivity there grows more slowly, as does the Chinese economy as a whole.

In short, the chief victims of this tax are the people of China.

Second, Uncle Sam’s taxes imposed on Americans who buy imports from China is a poor remedy for China’s IP violations. The direct harm that these tariffs inflict on us Americans might be a price worth paying if they offered the best hope of persuading the Chinese to treat our IP with greater respect. But they don’t.

The World Trade Organization (WTO) has in place a mechanism to settle IP disputes among its member nations, which include the U.S. and China. And China’s record at complying with WTO rulings is not bad. If the Trump administration were truly concerned about reducing Chinese violations of Americans’ IP rights, its first step — before inflicting painful tariffs on Americans — would be to bring complaints of such violations to the WTO. Yet so far it has brought only one such complaint.

This fact suggests that the administration cares less about whatever actual IP theft might be occurring and more about being able to fling charges of IP theft as a convenient means of stirring up public support for protective tariffs.

Further evidence that the administration really isn’t deeply worried about China’s alleged IP theft is its indifference to Uncle Sam’s high and growing fiscal indebtedness.

If we rank the looming threats to our future economic well-being, IP theft ranks much lower than does our children’s and grandchildren’s burden of paying off Uncle Sam’s gargantuan debt — debt in the form of outstanding bonds and of unfunded liabilities, such as Social Security obligations.

But judging from their (in)actions, Trump and Congress couldn’t care less about the heavy drag on the American economy created by Uncle Sam’s continuing fiscal profligacy.

Proclamations of concern for Americans’ economic future coming from politicians who ignore an approaching fiscal reckoning — a reckoning made more difficult with each day that its approach continues to be ignored — are not to be taken seriously.