The U.S has accused China of stealing their ideas and calling it economic espionage. These claims are caused by the China’s requirements that foreign firms who want to invest in their vast market to share technologies with the local firms. The result is U.S has continuously criticized the Chinese for stealing intellectual property (Bloomberg Opinion). Another reason is they are taking advantage of American firms’ interest in the over a billion market to get more sophisticated and advanced technologies illegally. It’s a practice that has caught the attention of U.S President Donald Trump. White House has threatened to impose a huge $50 billion punitive tariff on Chinese goods. Trump argues that these investment rules cause U.S firms to lose their intellectual property rights and the move interferes with the economy. However, China has repeatedly come out to dispute these accusations and stated that it has not forced any American company to give them license of their technologies. China further defends itself by claiming the U.S has no single evidence of forced technology transfers. They say that their cutting-edge technologies are a result of the government’s investment in research and development to boost innovations and creation of advanced technologies. This situation has sparked a heated trade war between the two powerful economies causing diplomatic tensions that spilled over during the WTO conference in 2018. U.S filed a complaint at the WTO dispute settlement committee seeking the backing of WTO to execute their plan of a punitive tariff on Chinese goods. The U.S should implement strict measures that prevent American firms from sharing their sophisticated technologies with China and in the process protect their intellectual property rights (Reuters).
Strategies China Use to Steal American Technologies
Joint ventures with American firms
The Chinese market remains a desirable and lucrative market for American companies. China has instituted investment rules that require foreign firms to partner with local firms in exchange for operations in the country. Through this joint venture process, Chinese firms can gain access to critical technologies. This rule is particularly applicable in specific industries like automobile, energy, and telecommunications. For example, General Motors and Ford have partnered with local partners to jointly manufacture cars in their factories. By striking up these partnership deals, American companies are pressured to share their technical know-how with these local firms who later use the knowledge to develop their own sophisticated products. For instance, it has been claimed the reason China is now a global leader in high-speed rail technologies is through joint ventures which allowed Chinese railway companies to learn new techniques (The New York Times).
Investing in U.S Companies
Chinese companies have been involved in acquiring or merging with American firms. These takeovers offer China the opportunity to get hold of cutting-edge technologies in various fields like energy, food, technology, aerospace. For example, in 2016, General Electric sold off its appliance division to Chinese company Qingdao Haier Co. These corporate deals give them a chance to steal technologies such as robotics and semiconductors and integrate them into their systems. China is also encouraging its private companies to invest in start-ups in Silicon Valley. This move grants access to emerging technologies and can use it to close the technology gap with the U.S (Bloomberg Opinion).
Use of Technology Transfer Centers
China Uncensored reveals that China has created National technology transfer centers. They exist within government, military, university and business fields. China uses this system to steal information or technologies from American firms. The information is then passed on to state-run industries who then use those stolen ideas in their firms to produce cheap Chinese knock-offs. As a result, it is estimated that the U.S loses about $5 trillion annually.
Impact of Forced Technology Transfers to the U.S
Hurts the US Economy
Technology transfers limit the development of U.S companies. When the Chinese acquire an American company, they take the technology back to their country and productions from sourcing raw materials, processing or manufacturing will mainly be done in China. This leaves businesses and individuals that previously benefited from the company lose market share hurting their operations (Bloomberg Opinion). The Commission on the Theft of American Intellectual Property estimated that the U.S economy loses about $600 billion annually and points the blame at China (CNN Business).
A Threat to National Security
China’s continued investment in U.S companies or start-up tech companies grants China access to military and sophisticated security applications. This move makes the U.S lose its edge in military technologies. For example, China is getting exposed to techniques useful in detecting threats to national security such as image detection and facial recognition applications used in social media. By investing in tech companies, China benefits by getting sensitive technologies that are later transferred to their country (New York Times).
Loss of Incentive to Create New Ideas
American individuals or firms that invent new ideas have patent protection for their products. The possibility of a firm to enjoy monopoly profits for many years to come is a great incentive to create new technologies. However, Chinese companies’ theft of intellectual property leads to the revealing of valuable commercial secrets. Their know-how or expertise is no longer a secret. By China stealing the technologies, it makes them lose their intellectual property protection which means loss of revenue. This ultimately discourages the drive for innovation (Cochrane).
Damages Competitiveness of US firms
Technology transfers lead to U.S firms disclosing confidential information about key technologies to Chinese firms especially through joint ventures and corporate acquisitions. The Chinese policies that promote sharing of techniques lead to loss of competitiveness by U.S firms. Those sophisticated technologies are what give them the edge and superiority. However, when the local Chinese firms also begin to use the same techniques, then the gap is closed. This firms will then become rivals and attempt to drive American firms out of the competition like by introducing cheaper alternatives in the market (The New York Times).
Recommendations to Curb Forced Technology Transfers
Implementing tighter non-disclosure agreements with China
U.S government should ensure that Chinese authorities sign stringent bilateral trade agreements. This regulation will prohibit American firms from disclosing trade secrets or confidential information to Chinese companies. America institutes bans or penalties in case Chinese firms violate or breach the agreements (Bloomberg Opinion).
Block Chinese Acquisition of American Companies
China has emerged as a potent economic and technological threat to the U.S. The Committee on Foreign Investment in the U.S (CFIUS) should discourage Chinese takeover of American firms. This action is essential for America not to weaken its technological superiority over China. Indeed, over the last two years of Trump’s administration, CFIUS has been instrumental in canceling several Chinese acquisitions. For example, they have prevented companies like MoneyGram, Cowen, Aleris, Global Eagle Entertainment, and Novatel Wireless from being sold to China (Bloomberg Opinion).
Encourage more U.S companies to invest in start-ups
There are many start-ups in the Silicon Valley which promise future cutting-edge technologies. Chinese companies have increasingly been targeting such firms. They provide the start-ups with attractive financial investment packages in exchange they can steal technologies which they use in their home country. Trump’s administration should persuade American investors to put their money into this promising ventures. In keeping up with his America first policy, he can emphasize the importance of the U.S protecting its emerging technologies (The New York Times).
Pass Stronger Legislations to empower CFIUS
The American agency needs more powers to reign in on Chinese investment. President Trump can initiate a bipartisan effort to strengthen and widen the oversight duties of the committee. This will equip the agency to control and be alert on any Chinese investment that threatens National security (Bloomberg Opinion).
Discourage Chinese Minority Investment
The Chinese use the trick of buying a minority stake in U.S companies. The move may seem harmless, but by being minority investors, they can send some of their employees to the American firm. Workers can steal or copy new designs and processes and later share it with Chinese companies. Trump’s administration needs to be aware of these schemes as they may go undetected (Bloomberg Opinion).
Impose the punitive tariffs on Chinese goods
Trump should proceed with his threat of slapping over $50 billion tariffs on imported Chinese goods. This disciplinary action will be vital in restoring trade discipline between China and U.S. (Reuters).
Conclusion
With each country aiming to outcompete each other in trade and technology, technology transfer wars will continue to be a major headache for the Trump administration. The U.S remains a global economic and technology powerhouse. American firms still can’t ignore the lucrative business opportunity China’s billions offer to them, and they will continually face the threat of sharing technologies. America is faced with the dilemma of taking advantage of the business opportunities and simultaneously losing their cutting technologies to a direct rival. Trump’s administration should increase counter-espionage measures to guarantee that America’s emerging technologies are protected from economic theft.
Works Cited
"Beg, Borrow or Steal: How Trump Says China Takes Technology." The New York Times, 22 March 2018. .
Cochrane, John. "Intellectual property and China." The Grumpy Economist, 13 August 2018. .
" How China squeezes tech secrets from U.S. companies." CNN Business, 14 August 2017. .
"How China Steals US Technology for Profit." YouTube, uploaded by China Uncensored, 11 September 2015. .
"Trump Is Right: China Should Stop Stealing the U.S.'s Best Ideas." Bloomberg Opinion, 8 August 2018. .
"U.S. and China clash over 'technology transfer' at WTO." Reuters, 28 May 2018. .
