David Leonhardt Wants China to Become More Protectionist

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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.