The New York Times Comes Out Against Free Trade in China

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Friday, 24 December 2010 06:47

That was the topic of its lead editorial which complained that China did not respect U.S. style intellectual property. Patents and copyrights are government granted monopolies that allow items like prescription drugs to sell at prices that can be several thousand percent above their free market price. This leads to the same sorts of economic distortions that would be predicted from tariffs of this size. As a result of this protection, software and recorded music and movies, which would otherwise be available at no cost over the Internet, can instead command high prices.

Given the enormous costs associated with patent and copyright protection it is not surprising that China would not be anxious to impose these costs on its economy. There are more efficient mechanisms for financing research in prescription drugs and creative and artistic work. It is understandable that China will only agree to accept these costs that it will demand something important in exchange, for example the option to maintain a seriously over-valued exchange rate that gives its goods a huge advantage in international trade. In effect, a policy that imposes U.S. style intellectual property rules on China is redistributing income from manufacturing workers and non-college educated workers (who disproportionately work in manufacturing) to companies like Pfizer and Microsoft and their highly educated workers.