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Home Publications Blogs Beat the Press David Leonhardt Wants China to Become More Protectionist

David Leonhardt Wants China to Become More Protectionist

Wednesday, 12 January 2011 06:26
NYT columnist David Leonhardt told readers that:

"For the United States, the No. 1 problem with China’s economy is probably intellectual property theft."

Both parts of this assertion are questionable. First, the notion of "intellectual property theft" only exists relative to specific intellectual property laws. China's laws are not the same as those in the United States, so much of the unauthorized use of creative and intellectual work in China may not be in violation of China's laws and therefore is not "theft."

More importantly, the enforcement of U.S.-type patent and copyright protections would lead to much higher prices for items like prescription drugs, computers, and computer software. This would slow growth in China, meaning its imports from the United States would increase less rapidly than if it did not respect U.S.-type patents and copyrights.

The increased outflow from China of payments for royalties and licensing fees would also tend to depress the value of the yuan compared to where it would otherwise be. This means that Chinese manufactured goods would sell for lower prices relative to U.S. manufactured goods. This would be a bad outcome from the standpoint of U.S. manufacturing workers. 

In short, the failure of China to enforce U.S.-type protections for intellectual property may be a problem for people who would benefit from patent fees and royalties from copyrights, it does not follow that the United States as a whole is harmed by China's free market approach.

It is also worth noting that, unlike the removal of protectionist barriers in China, which could lead to large gains for Chinese consumers, the imposition of stronger intellectual property rules will lead to much higher consumer prices. This is important because consumers would be a potential ally in the removal of import tariffs or quotas. They are likely to be strongly opposed to more rigorous protections of patents and copyrights.

Comments (4)Add Comment
Heads in the Sand
written by Ron Alley, January 12, 2011 7:09
Mr. Leonhardt, like so many others, has his head in the sand. The value of the currency, intellectual property law disparities and protectionism are symptoms, and perhaps insignificant symptoms, not the underlying illness.

China has eaten our lunch in trade negotiations and diplomacy. China has become the manufacturing center of our economy. By pegging its currency to the dollar, China has insured that no currency action by the United States will reduce Chinese exports to the United States and other countries. By cooperating with U.S. corporations in their efforts to arbitrage labor, China has taken advantage of our system of crony capitalism and built a strong manufacturing base. By gaining entry to the WTO, China has reduced the threat of protective tariffs not only in the United States but throughout the world. By gaining dominance in manufacturing consumer goods in the United States, China has insured that it will benefit directly from U.S. stimulus during recessions.

By maintaining quite strict control over its banking system and foreign investment, China has prevented the United States from dominating its economy through finance. By running a huge trade deficit with the United States, China has quadrupled its holding of foreign reserves assuring uninterrupted access to the dollar dominated petroleum market as well the financial power to influence U.S. economic policy.

China is also challenging U.S. diplomacy. The test of the stealth fighter on the eve of talks with U.S. Defense Secretary Gates and the week before a state visit speaks volumes. China has out-maneuvered the United States in pursuit of its perceived interests in North Korea, Iran and Sudan.

written by urban legend, January 12, 2011 2:47
I believe this is wrong about the laws of China vs. the laws of the U.S. China is a member of the WTO and WIPO, and therefore its IP laws need to conform to the WIPO principles. WIPO largely coincides with the IP laws of the U.S. and Western Europe.

Dean constantly rails against our intellectual property laws, but they have basically -- true, with some unfortunate corporate-friendly amendments -- been around in the English and American legal systems for several hundred years; have been endorsed in principle by the U.S. Constitution; and now have been adopted by the world. Dean's efforts on this seem beyond quixotic, and I would hope his credibility on other economic points is not undermined by that.
written by jethan, January 12, 2011 4:39
Check Wikipedia on "History of Patent Law" and scroll down to England where you will find these two interesting sentences: "This power was used to raise money for the Crown, and was widely abused, as the Crown granted patents in respect of all sorts of common goods (salt, for example). Consequently, the Court began to limit the circumstances in which they could be granted."
THAT's the result for which Dr. Baker is arguing. When there is a cheaper (better) way to encourage invention in science and the useful arts, use that way rather than granting patent monopolies which tend to screw the consumer.
An America Lost in Squanderville
written by Hugh Campbell, January 13, 2011 8:57
The United States’ trade gap is the proverbial “leak-in the-dike” with its de-simulative effect on our recovery. In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Media coverage that China has kept it currency undervalued is a gross understatement, it has actually been keeping the U.S. dollar over-valued; which adversely affects all our trade with all our trading partners, not just trade with China. Until action is taken on Buffett’s or a similar balanced trade model, by the powers that be, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.