China's Pirates, Currency, and Class

David Leonhardt has an interesting piece that asks whether currency values should still be an important issue between the United States and China, suggesting that China's appropriation of U.S. technology and intellectual products should be a more important issue. There is an important class aspect to this question that the piece overlooks.

From the standpoint of manufacturing workers and those whose wages might be affected by an increased demand for manufacturing workers (e.g. those without college degrees), the lower the value of the dollar against the Chinese currency the better. For this group, it matters little that China may not pay Microsoft the fees that it is claiming. In fact, it could very well be beneficial to these workers if China does not respect U.S. intellectual property claims since it will mean that they can buy products produced in China at a lower cost.

The situation is of course the opposite with the highly educated workers who will likely get increased pay if China adopts a strong intellectual property system. The shareholders of the affected companies will benefit as well.

This disparity in interests is undoubtedly central in the Obama administration's negotiations with China. It understands that the more it can get in terms of enforcement of intellectual property claims, the less it will get in terms of appreciation of China's currency. There also is the very real market consideration that if China is paying more in royalties and licensing fees to the United States, then its currency will have a lower value than would otherwise be the case, disadvantaging U.S. manufacturing workers.

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written by Ron Alley, February 16, 2012 7:50 AM

Great comment. Dead on.

izzatzo
written by JSeydl, February 16, 2012 8:49 AM

Where has izzatzo been? I miss his humor. His internship at the Colbert Report must have ended.

-1

Does IP have an impact on competitive advantage?
written by Jay, February 16, 2012 11:46 AM

It seems right now that US companies manufacture overseas not only for cheaper wages but for the manufacturing infrastructure. Don't you think the transfer of US technology (i.e. manufacturing equipment or techniques) is something that needs to be protected in at least some circumstances?

I don't know if lower costs mean much if people continue to be unemployed at these rates. Although, I think you're right only the highly privileged workers will reap most of the benefits. Whether it's higher salaries due to protection for competition or lower costs for goods in their BoBo McMansions.

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written by Peter.T, February 17, 2012 5:03 AM

It is unfortunate that companies are taking their businesses out of the United States and going to China because of the cheaper labor and it doesn't matter how well educated they are over there. It is still going to be cheaper labor, much cheaper. We can't do that here in the states. It is impossible to even have a meal on what they make in and entire day, sometimes a week.

Jobs going over seas to China just for fun does not seem like it is going to stop anytime soon but there those who are hoping to do the right thing.

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written by eric, February 17, 2012 8:38 AM

Thank you--that's a very important point. In principle, I would much rather see changes in currency levels than in trying to police information, and the class angle makes the issue even more clear.

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written by freebird, February 17, 2012 10:06 AM

Dr Baker, I'm not sure I agree with the premise that if China starts playing fair with respect to intellectual property, that the highly educated workers in the US would benefit. I count myself among these as a silicon valley engineer with post-graduate education. In my line of business 100% of the manufacturing has been farmed out overseas (including to factories in China) but the core R&D work is kept here at enormous cost. I don't doubt for a minute that there are armies of trained and capable engineers there who can replace many if not most of us at a fraction of our wages. What I suspect keeps senior management from doing just that is the prospect of losing control over the technology.

Reforming intellectual property governance seems like an interesting strategy for fighting a currency war.

freebird says,
written by diesel, February 18, 2012 11:10 AM

"What I suspect keeps senior management from doing just that is the prospect of losing control over the technology." which makes sense in this imperfect world, but those who advocate perfect free trade envision everlasting blue skies of peace and plenty, never the storm clouds of war when it's every nation for itself.

China's Pirates, Currency, and Class

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