Home > Uncategorized > Will China go nuclear on patent and copyrights?

Will China go nuclear on patent and copyrights?

from Dean Baker

Since Donald Trump has apparently discovered that the US imports more than it exports from China, we can put tariffs on more goods than China can. This means that China has to look to other measures to counter Trump’s trade war. Most coverage of this issue has neglected to mention China’s strongest alternative measure.

The nuclear option, in this case, would be to stop honoring US patents and copyrights. This would be hugely costly to US corporations, especially if they began to export items, like prescription drugs, to the rest of the world. This would likely violate WTO rules, but I suspect China will care about violating WTO rules as much as Trump does.

Anyhow, given this can mean massive savings on drugs and other items for billions of people and a big hit to shareholders in Apple, Pfizer, Microsoft and other high-flying companies, it would go far towards reversing the upward redistribution of income. Like Trump said, it’s easy to win a trade war.

  1. June 19, 2018 at 9:15 pm

    Um, I think it’s make, use, or sell. Trump can block sales of such goods here and Europe can do the same. Bootleg sales in China are happening now.

  2. June 19, 2018 at 9:18 pm

    Interesting twist to events, not being placed on the table for discussion. A favorite policy area for Dean Baker: patents and copyrights.

    I could not call myself a China hand or expert. All I can say is that I try to learn as much as I can from others who are, some of whom write for this organization, the WEA. And from them, I would say that China moves in quiet, determined steps to fulfill its policy goals. So a dramatic gambit like that would be along the road a ways, if the the trade war gets out of hand, as Paul Krugman seems to indicate from recent writings is now a possibility.

    Good heavens, Krugman is even reading Roman history! Gracchibros surely appreciates that, though he was there quite a few years ago and reading a different generation of Roman scholars. Some of whom were economic historians, or took a deep interest in the history of political economy.

    Sign of the the times. Don’t look now, but in this view outside the train of the US economy called “All is Swell,” the landscape has the look of the End of Empire, at least in good parts of the Red Start part of rural America. I’ve just a walking tour of my home town, filling a yellow legal pad with notes of what appear to be abandoned or vacant properties. You can read the lack of an economic base, a solid middle class in all the repairs that citizens could not afford to make – before many just walked away.

    • Jamie Morgan
      June 20, 2018 at 8:55 am

      The Sixteen Satires of Juvenal

  3. Craig
    June 20, 2018 at 12:56 am

    Integration of opposing economic truths is always superior and more intelligent than disintegrating treaties and relationships by blunt actions. And of course the thorough thirdness greater oneness integration of same is a paradigm change instead of the reactionary idiocy that Trump, Bannon and the rest of the third rate intellects in his administration ignorantly try to execute. It takes looking in places no one has so far looked and seeking the economic significances to be found there, and of course a study of paradigm changes and their signatures brings light as well. Just sayin’.

  4. Cristi
    June 20, 2018 at 10:25 am

    There are levers that China can use to play. The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated during the 1986-94 Uruguay Round, introduced intellectual property rules into the multilateral trading system for the first time. The patents are protected for a minimum of 20 years. China will not break this rule. It has other options like “compulsory license”. Read this from WTO site:
    What is compulsory licensing?
    Compulsory licensing is when a government allows someone else to produce a patented product or process without the consent of the patent owner or plans to use the patent-protected invention itself. It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.
    The TRIPS Agreement does list a number of conditions for issuing compulsory licences, in Article 31. In particular:
    –  normally the person or company applying for a licence has to have tried, within a reasonable period of time, to negotiate a voluntary licence with the patent holder on reasonable commercial terms. Only if that fails can a compulsory licence be issued, and – even when a compulsory licence has been issued, the patent owner has to receive payment; the TRIPS Agreement says “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”, but it does not define “adequate remuneration” or “economic value”.
    There’s more. Compulsory licensing must meet certain additional requirements: the scope and duration of the licence must be limited to the purpose for which it was granted, it cannot be given exclusively to licensees (e.g. the patent-holder can continue to produce), and it should be subject to legal review.
    For compulsory licensing, it’s when the generic copy is produced mainly for the domestic market, not for export.

    So, can China use this? Yes, of course it can. Look at ZTE case. China can say that ZTE tried to obtain the license of certain products but it failed due to US political pressure. So, China will provide compulsory licenses to ZTE to use banned products. But that will only be applied to local market. Since ZTE is an international player, it will not be pleased to have its products banned in other markets for breaking US patents. ZTE will pay royalties but will not have the agreement of the patent holder.

  5. Prof Dr James Beckman, Germany
    June 20, 2018 at 6:26 pm

    Hi, Cristi, I believe Compulsory licensing is a valid way for reversing Mr Trump’s “Valhalla” moment: let’s brute it out. First, every electronic product to my knowledge has components which use patents the component maker must cover. No problem if the component-maker holds the patent. The fee is included in the component-pricing, most likely. Second, I want Mr Trump to produce the patents involved, since his veracity quotient is close to 1%. Third, let’s negotiate fair licensing fees all around. Trump is like a bully who doesn’t want to play football because he fears he will lose, so he attacks off the playing field with clubs.

  6. Helen Sakho
    June 21, 2018 at 12:46 pm

    Yes, the “hottest” kind of weapons are nuclear ones. Many lesser a nation got away with it under the nose of the US many years ago (Pakistan for example), why wouldn’t China and North Korea, and the rest of them? In the final analysis, it is always the red button that counts and it is only the big chiefs who can push the reddest of the red. Let us not forget who started it all not so many years ago, why and who is still paying the price with their lives.
    The rest is just normal trade wars.

  7. June 26, 2018 at 11:53 am

    The idea that the USA trade deficit with China provides an edge in negotiation isn’t just wrong, it’s entirely backward. Most of China’s exports to the US are assembled goods, many of them built for US companies. Replacing those goods doesn’t mean just throwing up a factory and putting items together. It means replicating the whole supply stream of components and materials that China has built up over decades. Many of which are not in China. If the US could move those industries to the US it might involve many jobs—but as China clearly illustrates, there’s little reason to think they would be good jobs. In the short-term the origin place of those items won’t change. US consumers will simply pay higher prices and US companies will see depressed sales. More than a third of China’s exports to the US are parts used in building things at factories already in the US. Raising the price on those goods leaves companies little choice but to pass that additional cost on to customers. However, what China takes in from the US is often raw materials and agricultural goods. And, China also uses many US services, primarily technical services, where the US enjoys a large trade surplus. Raw materials and services are fungible. Corn and soybeans can come from somewhere else. So can software services. What the US gets from China is mostly items that, for now at least, it can only get from China. What China gets from the US is available from others. That is not a great formula for winning a trade war.

    Plus, the way goods from China to the US is calculated misrepresents the true value of Chinese goods. Foreign Policy magazine explains it this way,

    Take Apple’s iPhone. When iPhones are shipped from Chinese factories to the United States, the full import cost is attributed to China. Yet these phones include a Samsung display from South Korea, a Toshiba memory chip from Japan, and many other foreign components.
    According to one estimate, assembly in China accounts for only 3-6% of the $370 manufacturing cost of an iPhone X. Since that smartphone retails for $999, the bulk of the value added is American: Apple’s margin and that of U.S. retailers.

    Even a blanket U.S. tariff on all Chinese goods exports — iPhones and all — would be bearable for China. The OECD reckons that around a third of the content of U.S. imports from China is of foreign origin. So, the Chinese value added of its exports to the United States is perhaps $329 billion — some 2.7% of China’s $12 trillion economy. So, even if a blanket Trump tariff slashed China’s exports to the United States by 25%t, the direct hit to GDP would be 0.7%. That would hurt. But it would still leave the Chinese economy growing at 6.1% a year.

    • Craig
      June 26, 2018 at 10:32 pm

      Correct. The currently constructed international economic system has been set up to keep seemingly unresolvable cost and profit problems in suspension. The conundrum of tariffs and free and fair trade is one such.

      Your cost accounting observation that “Raising the price on those goods leaves companies little choice but to pass that additional cost on to customers.” enlightens the cost accounting convention that all costs must go into price, and points not only toward the tool that integratively undergirds and applies to every point of exchange, that is double entry bookkeeping, but where in commerce (the point of sale) policies can be implemented to resolve the above conundrum that the monetary paradigm of Debt Only enforces and keeps in suspension.

      • June 27, 2018 at 1:13 pm

        Craig, certainly the current international exchange arrangements are neither transparent nor beneficial for all communities. These arrangements are not effectively regulated to assure they are efficient and benefit every part of the world. Current arrangements also give too much control and too large a share of benefits, monetary and otherwise to the participants in international economic transactions. But such arrangements exist as they do due to the dominance of world governments by coercive capitalism. Democracy in politics or economics cannot exist in such a world. That’s obvious now but may soon become fatal for the world when self-interested corporations and plutocrats begin to deny access to any future for the world except the one they favor.

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