President Trump has stated that China has abused the U.S. in its trade policies by creating a great surplus in its balance of trade and has pirated intellectual property from U.S. companies.  . 

China’s Trade Surplus

U.S. consumers benefit from purchasing China’s products for a host of reasons, including price, quality, and availability.  All other countries that import from other countries do so for the same reasons.  It increases their standard of living.  Trade is a matter of free choice and occurs because of advantages.  

When Americans buy more dollar value from China than China buys from America the excess or deficit is recorded in the balance of payments in “the Current Account” of each country.   There are two other accounts:  the Capital Accounts and the Financial Accounts.  In a year’s time, all three Accounts will automatically net to zero.  America’s international trade deficit is also important to the global economy because the U.S. dollar is a nearly universal currency for trade.  If the worlds’ supply of dollars is not sufficient to support the all the trade desired, it would reduce that trade.  Reducing trade is undesirable to the global standard of living. That single fact is what made The Great Depression so severe.  The simple result of the President’s increasing tariffs with China and others is, simply put, a fool’s errand.  In the worst case it meets with retaliation in-kind, risks duplicating the cause of the Great Depression.

The objective of the President to do something about America’s loss of intellectual property pirated by China is a different matter.  Tariff changes have not contributed to resolution, and there is no reason they should.  Therefore, useless!   

How to Gain Compensation for Pirated Intellectual Property

America’s loss from China’s theft of American technology is more costly to the U.S than any amount of the trade imbalance.  Here is why.  The Chinese obtain best technology in their products, making them more sought in world trade.  They also retain lower costs of production from cheaper sources of capital and lower wages paid.  Chinese products become as good as “made in U.S.A.”, but at a lower price.  Assume America loses $400 billion per year in GDP – the approximate U.S. trade deficit with China.  The U.S, was not the only country that had intellectual property pirated; these other countries are also big trading countries – the European Union, Japan, Canada, Mexico and others.      

My solution is as follows.  The U.S. obtains from American manufacturers a list of products produced by China that contain pirated U.S. technology.  We should ask other countries to determine their technology losses also.  Next, place embargos on all those products, making them illegal to be sold in the U.S., or to any U.S. company located elsewhere.  Other countries do likewise.  The objective is to force compensation from China.  It would go to the companies whose property was pirated.  The compensation would be for previous sales up to now, and to continue compensation in the future as long as China continues to use the technology.  If this dispute were to be placed in a court of law, its settlement would be along the same lines.  The aim is to avoid slow-moving jurisdiction of the World Trade Court.  As an additional incentive, it might be worthwhile to begin immediately reducing tariffs to their former rate.  It might also serve to cause China to give up similar corruption in the future.  

Publiustoo.com                                                                                             September 18, 2019

New Approach-China Trade