China's Intellectual Property Theft Amounts to a Victimless Crime

There is a clear consensus among economists and business leaders that current U.S protectionist policies are backfiring. However, many still insist that China’s so-called theft of intellectual property must be combated. In fact, the sound and fury we hear about China piggybacking on the knowledge developed by others is a lot of noise and fury about little if anything.

We are seeing a host of proposed actions to protect IP, not just from the White House but from Congress as well. That even includes proposals to reduce visas to Chinese students - proof if any is needed that the protectors of IP would only undermine the process of discovery and development. It's worth stressing that the U.S economy likely gains more than it loses from China’s hijacking of American IP.

To be clear, China is indeed known for pressuring U.S companies to include Chinese counterparts in joint ventures that open a back door to technology transfer to China. But if companies believe they are hurt by the process, why do they engage in it? Companies are voting with their feet, or at least with their capital budgets. The truth is that the market and cost advantages of doing business in China must surpass any supposed downside, or U.S companies wouldn’t be so eager to locate operations there. U.S companies that complain about the process are in effect saying “stop me before I invest again.”

It is not surprising that U.S companies welcome a close relationship with their Chinese counterparts. The U.S-China traffic in intellectual property runs in both directions. One can’t just look at the IP U.S companies take to China, but also at the IP Chinese companies bring to the United States. Google and Microsoft, for example, have both opened major research facilities in China and are benefiting from them, gathering knowledge that has helped them in several areas, including the cloud. At the same time, Chinese companies have been locating facilities in Silicon Valley, bringing with them not just capital and jobs, but insights that the U.S economy would otherwise be denied. Building a wall to keep U.S technology in will also keep Chinese technology out.

In fact, the U.S has served as both a maker and taker of technologies and methods to improve efficiency. The lean production methods that have bolstered the auto industry and the mini-mills that have saved the steel industry were both the product of U.S. tapping into other countries’ ideas. The basis of innovation is not just developing ideas, but also building on the ideas of others. Just as Target adopting Wal-Mart’s advances forces Wal-Mart to constantly come up with new and more efficient means of production and distribution, the global race to compete has the same impact - disseminating and cross-fertilizing ideas in all directions.

As RealClearMarkets editor John Tamny has pointed out “Americans won’t be made better off by a slower Chinese economy.” If 1.5 billion people have joined the developed world economy - bringing their brains, energy, and consumer demand with them - that in no way undermines the U.S.'s ability to produce wealth; it only enhances it.

There are, in fact, enormous advantages to cross-fertilization of knowledge— even if at least initially China piggybacks on U.S IP, as the United States did in the 19th century vis-a-vis Britain.

Even if there were significant costs to the transfer of IP - forced or otherwise - does it really make sense to make this a trade agenda priority, much less launch a trade war over it? Companies and governments both have limited reservoirs of time and energy. They must be deployed wisely; trade wars are anything but easy. How wise is it to make IP piracy the central aspect of U.S-China trade relations? Rather than fritter away resources, negotiating clout and prestige to hoard existing ideas, the U.S and all advanced economies should be developing new ones. Rather than protecting technologies of the past, they should focus on advancing technologies of the future.

The scarcest resources cannot be found in any patent office. The scarcest and most valuable resource is found in the human mind. The more human beings from all countries work on developing prosperity, the more prosperous we will all be.