#tarriffed: IP at Core of Enhanced Chinese Tariff — WTO Action Pending in the Background

by Dennis Crouch

The White House is following through with its promise of adding a 10% tariff to $200 billion in goods imported into the US from China — set to begin on September 24, 2018.  On January 1, 2018, the tariffs are set to be raised to 25% on January 1, 2019. This is in addition to the 25% tariff applied earlier this summer on $50 billion in imports.  The President also issued statement that “if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”

Note – the tariffs are calculated based upon a valuation of the goods at the point of entry into the US.  The Trade Agreements Act of 1979 provides six different ways methods of customs valuations in ranked order: (A) transaction value; (B) transaction value of identical merchandise;  (C) transaction value of similar merchandise; (D) deductive value; (E) computed value; and (F) reasonable value. 19 U.S.C. 1401a.

Earlier in 2018, the United States Trade Representative (USTR) released its Section 301 Report concluding that China is engaged in unfair policies and practices relating to United States technology and intellectual property. The report highlighted:

  • “China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.
  • China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.
  • China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.
  • China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.”

According to the USTR release, the new tariffs follow because “China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property.”

Trade Act of 1974 authorizes the USTR to take action to address these conclusions — via tariffs and exclusion orders.

In addition to US unilateral action, the WTO Dispute Settlement System is designed to help countries resolve this exact type of dispute the US and China have filed competing complaints that are now in process.  The key underlying dispute is DS542 filed by the US against China for “Certain Measures Concerning the Protection of Intellectual Property Rights” in violation of Articles 3, 28.1(a) and (b) and 28.2 of the TRIPS Agreement.  In the complaint (“request for consultations”) document, the USTR explained the basis for WTO action:

China denies foreign patent holders the ability to enforce their patent rights against a Chinese joint-venture party after a technology transfer contract ends. China also imposes mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology. Therefore, China deprives foreign intellectual property rights holders of the ability to protect their intellectual property rights in China as well as freely negotiate market-based terms in licensing and other technology-related contracts.

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108 thoughts on “#tarriffed: IP at Core of Enhanced Chinese Tariff — WTO Action Pending in the Background

  1. 9

    I’m no fan of the tariffs et al., but I do think that it would have been a great play on words to say “tarriffied” instead of “tarrifed.”

    1. 9.1

      That is what I originally saw when I first read this article. It was only on a second reading that I noticed that the word was not “tariffied.”

  2. 8

    It’d be nice for someone on the pro-tariff side to explain why they think tariffs will be an effective tool to get China to change their IPR policies.

    1. 8.1

      I agree with this, but I think that there is a distinction to be made for proper understanding that is not being made up and down this thread. When we say “effective,” there are actually two different concepts being conflated here. There is tactical effectiveness and instrumental effectiveness.

      That is to say, if I am building a rocket, and want to acquire a particular part for the rocket at the best price possible, then I will want a particularly skilled negotiator to bargain for the part, in order that I get the best possible price. This is instrumental effectiveness.

      However, I will also want my most competent rocket scientists to identify the precise nature of the part that needs to be acquired. This is tactical effectiveness.

      If I send my best negotiator out without having first identified what is the part that is needed to make the rocket function correctly, then she will likely get me a great price on a useless part. Similarly, if I send my best rocket scientist out to do the negotiation, she will likely overpay for the right part.

      Obviously the second case is better than the first. At least then I will have spent my money on value, as opposed to nought. This is as much as to say that tactical effectiveness is more important than instrumental effectiveness. Still and all, in order to achieve an optimal outcome, I need both instrumental and tactical effectiveness.

      All of this talking about who will “blink” first is focused entirely on the instrumental effectiveness of the negotiators. It is as if we have forgotten the most important part of the negotiations (what is the goal that we ought to be seeking with our negotiation skill?).

      People who are boosting for tariffs need not only to be able to explain why tariffs will be (instrumentally) effective, but also why the game is even worth the candle (what is the tactical effect for which one is aiming?). I have seen scant evidence of either explanation here, but before we leap onto the discussion of the instrumental effectiveness of tariffs, we really need clarity on the tactical effectiveness supposedly in view.

      1. 8.1.1

        Likewise, Greg, you have already made up your mind that one (or both) cannot exist for tariffs — of any sort.

      2. 8.1.2

        That’s all beyond reproach, but I’d hate for it to discourage someone making a case for either effectivity individually.

    2. 8.2

      It very well might not. Another view on tariffs is that they will encourage, over the long term, importers (or overseas US producers) to source from (or produce in) countries that have fair and reciprocal trade practices. I don’t view tariffs as a tool to coerce Chinese behavior, but rather as a baseline treatment for any trade partner with excessively unfair and asymmetric trade practices. In other words, it’s not so much a punishment as an encouragement to take our business to other countries. Another benefit is protecting US firms from unfair competition. You hear people say that the motive for tariffs is good (i.e., China does bad things), but that tariffs are not the right tool. But these people have no answer to the question “if not tariffs, then what?”, nor do they have an answer to the fact that a decade or more of talk has accomplished almost nothing.

      1. 8.2.1

        I don’t view tariffs as a tool to coerce Chinese behavior, but rather as a baseline treatment for any trade partner with excessively unfair and asymmetric trade practices.

        What is “unfair” or “asymmetric” about Chinese trade practices? We pay them money, and they send us goods. They pay us money, and we send them goods. This is fairly well the essence of a fair trade.

        1. 8.2.1.1

          Don’t be pedantic. Just because two parties willingly engage in an exchange does not guarantee that it is a fair exchange (an exchange can be both beneficial to a party and unfair to that same party). Also, we are talking about inter-nation trade, so it is China’s barriers and practices that are unfair. You are right to say that trade is good, and that is why the US ought to use its leverage w.r.t. trade to make sure that who we trade with extends to us the same benefits we extend to them. Would you be OK with the US allowing imports from a country that had a complete embargo of US goods/services? Would you be OK with the US importing everything it needs from all over the world and producing nothing domestically?

          1. 8.2.1.1.1

            Would you be OK with the US allowing imports from a country that had a complete embargo of US goods/services?

            Of course I would. Just as I am content to buy my groceries at Ralphs even though they have never bought a dimes worth of legal services from me. If you think that their willingness to accept U.S. imports is a relevant consideration, then I will submit that you really do not understand the value of trade.

    3. 8.3

      When their economy suffers from loss of United States market share, they will feel the pressure and decide maybe it is time to accept some of the changes we are asking of them.

      1. 8.3.1

        When their economy suffers from loss of United States market share…

        O.k., but in case those on my side of the discussion have not been clear on this, we are skeptical that China will necessarily suffer a loss of market share. You see, the tariff question is complicated. The U.S. has imposed tariffs on Chinese steel, for example, but not Chinese car parts (which are made of steel). So one possibility is that GM may stop buying Chinese steel, in which case Chinese steel makers would lose market share. On the other hand, another plausible response for GM would be to move its parts manufacturing to China (at which point, its Chinese manufacturing facilities would not be importing steel from China into the U.S., and thus would not pay tariffs), and then import (untariffed) car parts into the U.S. In that case, China would not lose market share.

        In other words, the idea of China losing market share is incredibly contingent on a host of other factors that are not actually under the U.S. administration’s control. What is the likelihood that those contingent decisions (that depend on the business intuitions of GM execs, or John Deere execs, or Harley Davidson execs, etc) will actually come to pass? If you do not have a good answer to that question, then you do not actually have an explanation as to how tariffs will lead to the outcome you want.

  3. 7

    *China sends tens of thousands of its nationals to America’s top tech companies and universities every year to spy for the mother ship. China certainly does not reciprocate for US citizens.

  4. 6

    I run a huge bilateral trade deficit with my grocery store. Every year I buy tens of thousands of dollars of food from them, and they buy $0 worth of intellectual property law services from me.

    Imagine that I were to impose a 1000% surcharge (tariff) on all food that they want to sell to me.

    Would they care? (maybe)

    Would I benefit from that? (definitely not)

    I think that this rather gets at the absurdity of worrying about bilateral trade deficits. People only make a voluntary exchange if both sides think that they will be better off by virtue of the exchange. Sometimes they are wrong in this estimation, but the relevant individuals involved are much more likely to know what exchanges are individually beneficial than is the USTR.

    1. 6.1

      You and P.T. Barnum should have a chat.

      I am pretty sure that you would end up paying him a “fair” price for his taking all that straw off of your hands.

    2. 6.2

      “People only make a voluntary exchange if both sides think that they will be better off by virtue of the exchange. Sometimes they are wrong in this estimation, but the relevant individuals involved are much more likely to know what exchanges are individually beneficial than is the USTR.”

      This is of course correct. I believe the counter point is that these voluntary transactions with chinese entities have costs which are only relevant in the aggregate and/or on a time scale too long to influence corporate decision making. I’m somewhat skeptical this is correct, but I don’t think it’s correct to say that voluntary transactions couldn’t lead us to unwanted outcomes.

      1. 6.2.1

        I don’t think it’s correct to say that voluntary transactions couldn’t lead us to unwanted outcomes.

        I definitely agree that it would be incorrect to say that voluntary transactions cannot lead to undesirable outcomes. I tried to make clear that I do not believe that when I wrote that “[s]ometimes [people making a voluntary transaction] are wrong in th[e] estimation [that the exchange will make them both better off].”

        My point is that while the involved individuals might be wrong in thinking that their proposed exchange is mutually beneficial, the trade authority who tries to stop the exchange—believing that it will not be mutually beneficial—might also be wrong. No one is working from perfect information. In a world run by human beings, some things will turn out suboptimally.

        The question then, is not “who will make a perfect decision?”, but rather “who is more like to make the best decision more often?”. As between the involved parties (who have a great deal of relevant info about the expected costs and benefits of the deal) and the USTR (who has much less info), I would trust the involved parties.

        This, of course, assumes no externalities to the exchange. I am all in favor of certain government regulators (environmental pollution authorities, anti-money laundering authorities, etc) stepping in to prevent a transaction where the transaction has deleterious effects to folks outside of the exchange. If the pro-tariff contingent believes that the USTR is regulating externalities here, however, they have been suspiciously quite about naming the alleged externalities.

        1. 6.2.1.1

          It’s not about perfect decision making but the scale of decision making. If there are emergent effects that only appear in the aggregate, we cannot expect parties to price that into their transactions. That invites the possibility of needing an actor with a gestalt view to intervene.

          “If the pro-tariff contingent believes that the USTR is regulating externalities here, however, they have been suspiciously quite about naming the alleged externalities.”

          Agreed. It seems to be vaguely suggested that the aggregate transfer of technology is a negative externality, but I have not seen even hints of the specific mechanism for this.

          1. 6.2.1.1.1

            [T]he possib[le]… need[ of] an actor with a gestalt view to intervene.

            I can certainly agree with the idea that there are situations that would be improved by the intervention of such an actor. I am even on board with the intervention when such an actor is to be had. Often as not, however, the only actor with a gestalt perspective is God almighty, and He evidently does not wish to intervene in trade disputes.

    3. 6.3

      The fallacy in this argument is that it treats goods and currency as equivalent. They aren’t. The liquidity of currency gives it a unique value. We don’t have a barter system because it’s not efficient; most people would prefer to be paid in currency, not groceries etc. Also, at least with respect to China, although I don’t have numbers, it’s possible that the things bought with currency may tend to be discretionary consumables and often aren’t used for creating more value. Finally, the net effect of trade on the nation should be considered. There are a lot economic inefficiencies when entire regions see significant labor market losses. Drive through Flint Michigan and you’ll understand what I mean. So the common argument you present is “globalist” in that it is only concerned with the welfare of private individual actors ignores the welfare of a nation as a whole, which of course does come back to the welfare of individual actors. Not an economist, so that all might be so much drivel.

      1. 6.3.1

        For not being an economist, there was no drivel there.

        You offered solid points for consideration.

      2. 6.3.2

        [T]his argument… treats goods and currency as equivalent.

        What are you talking about? I pay dollars when I buy my groceries. I do not barter my legal services. If Ralphs were to hire me to IP work for them, they would pay me dollars as well. No one but you is talking about barter. If you think that this talk of barter exposes a fallacy, then the fallacy that you have exposed is part of an argument that no one is making.

        [I]t’s possible that the things bought with currency may tend to be discretionary consumables and often aren’t used for creating more value.

        I would consider that more than probable. So what? What is the significance of this distinction?

        [T]he common argument you present is… only concerned with the welfare of private individual actors ignores the welfare of a nation as a whole…

        There is no such thing as the “welfare of the nation as a whole” considered apart from the welfare of individuals. The United States is just a bunch of people. Nothing more, nothing less. If the people living within our borders are doing well, then the United States is doing well. If the people living within our borders are doing poorly, then the United States is doing poorly. There is no additional criterion by which to assess the “welfare of the nation” other than the aggregate welfares of U.S. individuals.

        1. 6.3.2.1

          There is no such thing as the “welfare of the nation as a whole” considered apart from the welfare of individuals.

          This is objectively false.

          Myopically naive, this view oversimplifies the presence — and bilateral effects — of juristic persons.

          Much like Greg’s “presumed no externalities,” this view is coupled with some sense of “tariffs must be bad unless proven otherwise” gives a slant (up and down) to Greg’s posts that detract from points concerning the negative effects of tariffs.

          1. 6.3.2.1.1

            Thank you for that. “Nationalism” and “patriotism” don’t have to be dirty words.

        2. 6.3.2.2

          “There is no such thing as the “welfare of the nation as a whole” ” Respectfully, I can no longer take your comments seriously.

          1. 6.3.2.2.1

            Fair enough. I will recommend that you read some Bastiat. If you do not care to do, I am content to agree to disagree on subjects of trade.

            I would, however, be very interested to read in what consists the “welfare of the nation as a whole” that somehow transcends the welfare of individuals in that nation.

      3. 6.3.3

        Drive through Flint Michigan and you’ll understand what I mean.

        I am quite sympathetic to your concern for Flint’s former factory workers. If this really is the motivation behind your support for tariffs, may I suggest that your heart is in the right place, but your thinking might be ill-informed. See 8.3.1 above for an explanation of why tariffs against Chinese imports might cause more layoffs than hiring in the U.S.

        1. 6.3.3.1

          No. The point is not about any particular industry. The point is that the collective effect of trade policy (and unfettered competition from regions lacking equivalent labor and environmental standards, among other differences) can’t be ignored. We might not be able to bring back certain jobs, but that doesn’t mean we have to continue to bleed away the ones that remain. It might be economically efficient in some ways to import goods from China instead of producing them domestically, but if a side effect is mass unemployment of entire regions, the efficiency equation should incorporate that cost … the costs taxpayers must bear for the unemployed individuals and the loss of regional income and everything that goes with it. In addition, for certain trades and ages, a person who loses a job to cheaper imports will often suffer permanent and significant diminished livelihood. But hurray for that extra X% profits for the corporate officers and shareholders!! You model trade as purely utilitarian and private. It isn’t. There are collective effects, which was my point about Flint (have you been? it must be seen to be believed). We have many rules that restrain importing and exporting for many policy reasons, because sometimes the economics of a private transaction must give way to the public good.

          1. 6.3.3.1.1

            [H]ave you been [to Flint]? it must be seen to be believed.

            Yes, many times. I went to school at the Univ. of Michigan, and I used to drive up to Flint with some church friends to attend the Tridentine Mass at All Saints parish.

          2. 6.3.3.1.2

            We might not be able to bring back certain jobs, but that doesn’t mean we have to continue to bleed away the ones that remain.

            As I said, if you will care to read and consider 8.3.1, you will see that it is very possible that tariffs will hasten—not slow—job losses.

    1. 5.1

      “However, Ross told CNBC on Tuesday, “Nobody is going to actually notice it at the end of the day,” because the hikes will be “spread across thousands and thousands of products.””

      That is entirely correct, and eventually it will just be ironed out as we source from other places nearly at the same price point. Nobody cares about china and their slave population. Maybe they should try FREEDOM at some point.

      1. 5.1.1

        That is entirely correct, and eventually it will just be ironed out as we source from other places nearly at the same price point.

        I think that this is the likeliest outcome. The tail risk here is higher than one might like, however. This goes double when one considers that there is little to no obvious upside to any of it.

        If I stand four feet from the edge of the cliff, and start spinning until I fall down dizzy, I am more likely than not to stay on the cliff. What do I gain from this, however? Meanwhile, the likelihood of falling off while behaving like this is high enough that one could not call such behavior “prudent.”

        Our current trade posture reminds me of the four-feet-from-the-edge-spinner.

    2. 5.2

      You shouldn’t ignore the fake billionaire because he’s not a billionaire, you should ignore him because he’s a liar.

      link to forbes.com

  5. 4

    The USTR reports also reached the same conclusion under the last two presidential administrations. They’re online and should be ready by anyone concerned with the issue.

      1. 4.1.1

        Thank you, and thanks for the visibility to CAFC no-opinion decisions.

    1. 4.2

      I think everyone that knows how DC works knows that Clinton gave away the farm to the Chinese. He probably did it because the military wanted China to once and for all not be communist.

      But—seriously–China has been cheating since Clinton let them in the WTO.

      1. 4.2.1

        I think everyone that knows how DC works knows that Clinton gave away the farm to the Chinese. He probably did it because the military wanted China to once and for all not be communist.

        Yes but Ted Olson’s sex slave farm is in Ku-tan Province hence the Ukranian salt-for-aluminum deal. Which is why Tower 2 had so many pizza deliveries on 91/1.

        1. 4.2.1.1

          MM, I see you are out of your cage again.

          Maybe before yapping you should read a book or two. The US giving economic deals to countries to influence their politics is standard practice.

          See Japan after WWII (this one is relate to RCA and patent law), Germany after WWII, promises to the USSR that never materialized, etc.

          1. 4.2.1.1.1

            The Marshal Plan, etc. etc. etc. The fact is what happened was that politically it is so hard to give countries foreign aid that politicians instead cut trade deals to help them. Again standard practice.

            It is one of the few things the US has done that has helped the world and probably helped China quite a bit and probably wasn’t such a bad idea in principle.

  6. 3

    “..cost increases have thus far been almost unnoticeable.”
    Of course not, it will not occur until U.S. inventories and all the shiploads in transit of the huge % of U.S. consumer goods made in China are exhausted. But if they are among the many U.S. companies operating on a “just in time” [low inventory cost] system that should not take very long.

    1. 3.1

      because we can’t buy from other countries herp. Derp.

      Chiner will bend the knee.

      1. 3.1.1

        6, I also hope a trade deal is concluded soon. But do you really think building manufacturing plants to make tens of millions of electronic products, home appliances, and plastic consumer products in other countries [or here], and training tens of thousands of employees, is going to just happen overnight? And that American consumers will patiently wait and patiently pay 25% more for all their consumer products in the meantime? Or that China is receptive to be bullied by Westerners like it was in the 19th century? Or that they would be likely to trust a trade agreement with someone who breaks them whenever he feels like it?

        1. 3.1.1.1

          Good points. To add to it, it’s important to recognize that there will always be a segment of the population that is not going to need low-education jobs that provide a living wage. Manufacturing filled that niche. We need to at least preserve, if not somewhat revive, that part of the job market.

          1. 3.1.1.1.1

            Losing the manufacturing base has had trickle effects to losing R&D associated with the efforts of turning innovations into market products.

            One aspect of Tariffs is to fight the (foreign) State-subsidized low cost factors that invite in those low cost manufacturing elements.

            Yes, this may have a very real effect on US prices. But see my other posts as to why China may well STILL be the one that blinks first.

          2. 3.1.1.1.2

            [T]here will always be a segment of the population that is… going to need low-education jobs that provide a living wage.

            I agree with this.

            Manufacturing filled that niche. We need to at least preserve, if not somewhat revive, that part of the job market.

            I disagree with this. Or rather, I think that this is too simplistic. The United States is already the world’s second largest manufacturer in terms of total dollar value. That value has been steadily href=”https://tradingeconomics.com/united-states/gdp” rel=nofollow>growing, while the share of the U.S. workforce employed in manufacturing is on a downward trend. This is as much as to say that “reviving” manufacturing (what is there to “revive” when it is and long has been growing?) is unlikely to provide the employment that you rightly note to be needed.

            That is as much as to say that “someone” needs to think of “something” for that segment of the population to do, but “manufacturing” is probably not the “something” for which we are looking. I do not pretend to have a great answer to this question, but I do have a modest suggestion.

            The United States has—far and away—the highest crime rate of any comparably wealthy country. We could do with a lot more police and a lot more security guards. Not everyone who used to work in a factory could instead do security, but many could. If we encouraged unionization in the security industry like we once encouraged unionization in the auto manufacturing sector, and if we boosted budgets for police hiring, that would take up a non-trivial amount of the employment slack, and do so in a manner that would achieve some useful outcome in return for the funds outlaid.

            1. 3.1.1.1.2.1

              We could do with a lot more police and a lot more security guards.

              I suggest that such “militarizing” is an awesomely BAD idea.

              This does not attack the root cause, and sets a dangerous mindset as to force being “the solution” (and that force being a “state” entity.

            2. 3.1.1.1.2.2

              “Let’s form paramilitaries out of the unemployed” has certainly been a solution in the past, but usually not one that ended up going well for anyone involved.

              This leaves aside the other issues, like:
              1) the US crime rate not actually being higher than comparable countries except when it comes to gang-on-gang shootings (link to amazon.com)
              2) all but the most elite “security” being ineffective security theater at absolute best and actively harmful in almost all other cases (e.g. TSA security lines are like Christmas come early to a hypothetical bioterrorist)
              3) security generally existing entirely for the purpose of creating negative externalities (since it just means threats get deflected to whatever neighbor isn’t paying for as much security, and also does some negative social things like not only legitimizing but actively institutionalizing cowardice)

              1. 3.1.1.1.2.2.1

                [T]he US crime rate not actually being higher than comparable countries except when it comes to gang-on-gang shootings

                Translation, “the U.S. crime rate is not different except where it is.” The source you link shows that U.S. violent crime is much higher than peer nations. Given that most of us care more about violent crime than about non-violent crime, I take your statement as mostly a grudging concession of the point I was making.

                TSA security lines are like Christmas come early to a hypothetical bioterrorist…

                Agreed. To the extent that I was not clear, please allow me to make clear that I am not advocating for more TSA. I would like to see the TSA totally dismantled.

                [A]ll but the most elite “security” being ineffective security theater at absolute best and actively harmful in almost all other cases…

                The example you give to substantiate this assertion is the TSA. To the extent that you are only talking about the TSA, I grant your point. To the extent that you are speaking to the issue of security more generally, I would really like to see a source for that contention. I have never heard such a claim before, and I find it intuitively implausible.

                [S]ecurity generally… just means threats get deflected to whatever neighbor isn’t paying for as much security…

                Once again, I would really like to see a source for this one. This also strikes me as intuitively implausible, and I have never heard this claim made by a trustworthy expert.

                “Let’s form paramilitaries out of the unemployed” has certainly been a solution in the past, but usually not one that ended up going well for anyone involved.

                If you think of the police department as a “paramilitary,” then I am not sure how you hope to substantiate that claim. Can you actually point to documented instances of U.S. cities where hiring more cops resulted in untoward increases in violence?

            3. 3.1.1.1.2.3

              Let me put it bluntly. I’d rather pay more for the things that you would allow to be foreign-sourced if it means Americans don’t lose their jobs. Because we’re all in it together, to some extent, and it affects all of us when people lose jobs. Either that, or the government (or would-be departing employer) guarantees the same income of the displaced worker until they find equivalent pay (even if that means until retirement age). Germany has a similar policy, I believe.

        2. 3.1.1.2

          “But do you really think building manufacturing plants to make tens of millions of electronic products, home appliances, and plastic consumer products in other countries [or here], and training tens of thousands of employees, is going to just happen overnight?”

          I think barely anyone will even notice the largest of hiccups in supplies from China.

          “And that American consumers will patiently wait and patiently pay 25% more for all their consumer products in the meantime?”

          It isn’t “all” of their consumer products. We do buy things from other people, and can buy things from still other people (including ourselves). And yes, the Merican people won’t say a thing. Except to reelect Trump.

          “Or that China is receptive to be bullied by Westerners like it was in the 19th century?”

          Of course they’re not receptive. That’s why we’re going to have to show them what dealing with a hyper power MEANS.

          “Or that they would be likely to trust a trade agreement with someone who breaks them whenever he feels like it?”

          Nobody cares if they “trust” a trade deal that gets put in place. Besides that, the evil white cis hetero christian capitalist patriarchy is notorious for upholding their ends of deals, whereas trade shinanigans is basically china’s MO for decades. They’re the ones already making out like bandits on money (what they want and need very badly to power their growth). We make out like bandits in terms of junk on top of our junk (what we sort of fiddle around with).

          1. 3.1.1.2.1

            [W]e’re going to have to show them what dealing with a hyper power MEANS.

            How does one get to be a hyper power. How does one maintain that status.

            You might want to reflect on Lord Varys’ parable of the king, the priest, and the plutocrat. There is more to being a hyper power than just owning a lot of guns and bombs and jets. As Varys notes, if weaponry alone were power, then the man with the sword in the room with the king, the priest, and the plutocrat would be the most powerful of the four, and yet he was actually the least powerful. Acquiring and maintaining power has much to do with how it is used.

            You know the joke “how do you make a small fortune? Start with a large fortune…”? Power, in this respect, is much like wealth—easier to dissipate than to acquire. Using our power in order to ensure that our own citizens must pay more consumer goods while simultaneously eroding our esteem in the eyes of our peers is a highly effective means to go from being a great power to being a minor power (“how do you become a minor power? Start as a hyper power…”).

            1. 3.1.1.2.1.1

              The parable is inapplicable to the present conversation.

    2. 3.2

      Of course not, it will not occur until U.S. inventories and all the shiploads in transit of the huge % of U.S. consumer goods made in China are exhausted.

      Not quite correct, as just the other day I was reading about how leading indicators (related to long term purchases in certain areas such as shipping and agriculture; tied to raw material supply such as steel) are now showing effects. These effects not only including direct effects, as may be easily identified, but also discussed secondary effects, such as impact of increased uncertainty and the spector of US internal sources increasing their prices (pure profiteering under “cover” of the tariffs, when no effect of tariff is actually present).

  7. 2

    Tariffs have put… Billions of Dollars, and Jobs… into our Country – and yet cost increases have thus far been almost unnoticeable.

    Does our President think that he is speaking German? Why does he capitalize so many nouns that have no reason to be capitalized?

    “China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property.”

    What does “unfair” mean in this context, and how do we reckon “fairness”? China is under no obligation to structure its legal system for our benefit, just as we are under no obligation to structure our legal system for their benefit. If China sets the rules for doing business in China in a manner that maximizes the benefits for Chinese citizens, that is just the way that the game is played. It seems beneath the august dignity of the United States to grouse about that.

    Also, what is “U.S. technology”? If we are talking about government-developed technology, then the obvious solution is for the U.S. government—which controls the disclosure of such technology—not to share it with China. If, however, the term merely means “technology developed in the U.S. borders,” then the USTR should really draw in its claws. U.S. innovators are sophisticated enough to know whether they gain or lose by exporting their technology to China. The USTR should not presume to know better than the inventors themselves or the companies themselves.

    “China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.”

    So? Look, there are only two possibilities here: either a company thinks that these requirements that the Chinese government imposes as a precondition of doing business in China are—in order to gain access to the second largest market in the world—worth the cost, or else they are not worth the cost. I expect that some companies decided that the CN requirements are not worth the cost, as is their right.

    The fact that there are companies headquartered in the U.S. that choose to business in China despite these rules, however, tells me that these companies consider the benefit of business in China to outweigh the costs. If so, how is it the business of the U.S. government whether these companies do or do not comply with the CN rules? This is a negotiated exchange between two parties. The government is only rarely well qualified to step into the middle of such a negotiated exchange.

    China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.

    And more fool, China. It is not our responsibility, to save China from its own mistakes.

    China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.

    Once again, there are only two possibilities here: this technology is so important for national security that we dare not let the Chinese have it, or else it is not. If it is national-security important, there are better means of protecting it than tariffs, and such means are already codified in the US Code. If the technologies in question are not national-security important, however, then why does the USTR care about them? What business is it of ours? Innovator companies are sophisticated enough to look out for their own well being without our government nosing in.

    China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.”

    O.k., here I am entirely on board with the seriousness of the issue. If, however, the contention being made is “we will impose tariffs until the cyber snooping ends,” then we need to be clear that this is the message. None of this nonsense about “very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country.” If one is negotiating to achieve something, one must be clear about what is being sought. Dragging the conversation into irrelevant details will not advance the goal being sought.

    1. 2.1

      China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.

      The US would never ever do anything like this.

      1. 2.1.1

        Under any administration, right?

        Or is that “too Glibitarian?”

    2. 2.2

      Greg says: “What does “unfair” mean in this context, and how do we reckon “fairness”? China is under no obligation to structure its legal system for our benefit, just as we are under no obligation to structure our legal system for their benefit.”

      Correctomundo! We structure our legal system to make their manufacturers have to pay tariffs to the US Treasury in order to have access to our market, and not give a hoot about benefits to the Chinese. If they don’t like that outcome, maybe we can negotiate a deal so each countries manufacturers get a better outcome in the other.

      1. 2.2.1

        We structure our legal system to make their manufacturers have to pay tariffs to the US Treasury in order to have access to our market, and not give a hoot about benefits to the Chinese.

        I am with you about not giving a hoot about the benefits [vel non] to China, but I quibble with the idea that “their manufacturers have to pay tariffs to the US Treasury.” In the final analysis, it is not CN manufacturers who pay the tariff, but U.S. consumers.

        Speaking as a U.S. consumer, I give rather more than a hoot about the idea of my sales taxes going up.

        1. 2.2.1.1

          Speaking as a U.S. consumer, I give rather more than a hoot about the idea of my sales taxes going up.

          To be very clear, I do not care right now. As Pres. Trump says, “cost increases have thus far been almost unnoticeable.” That is a correct assertion. So far, tariffs have amounted to ~$20 billion, which is not even a rounding error in the United States’ ~$20 trillion economy.

          However, I am getting nervous about the trend line here. We imposed tariffs on China, so they retaliated by imposing tariffs on us. Then we retaliated to their retaliation by imposing more tariffs, and now they are retaliating further still by imposing even more. Rinse & repeat. The overall numbers are small now, but they will only stay small if someone in this process is grown-up enough not to rise to the next level of retaliation and counter-retaliation.

          1. 2.2.1.1.1

            China has more to lose not selling here than we** have to lose not selling there.

            They will blink first.

            **no matter how “we” is defined.

            1. 2.2.1.1.1.1

              “They will blink first.”

              Greg is basically a noob’s noob at negotiating. Take him to a car dealership and the dealer is 4k richer when the initial markup was only 1k.

              1. 2.2.1.1.1.1.1

                I think that we can all agree that it is a good thing that I am not in charge of the trade negotiations.

                Nothing about this observation, however, actually makes anything that you have said a whit more insightful, nor anything that I have said a whit less so.

      2. 2.2.2

        [M]aybe we can negotiate a deal so each countries manufacturers get a better outcome in the other.

        What is this “each countr[y’s] manufacturers” of which you speak? I can understand what it means to speak of “China’s manufacturers,” because so much of the manufacturing capacity of the PRC is actually government owned.

        What, however, is an “American manufacturer”? Our government owns scant manufacturing capacity—so little as to be scarcely worth the mention.

        Manufacturers who happen to have factories in the U.S. are not—in any meaningful sense—“American.” Long experience has shown us that they have no loyalty to the U.S. or our sovereign interests. These companies will (perhaps rightly, given their corporate charters and fiduciary responsibilities) sell the U.S. and our interests down the river for $1.50 if given the chance.

        Our government should not expend taxpayer resources looking out for the interests of these companies. They have made quite clear that they will not return the favor, and they are thoroughly capable of looking out for themselves, in any event.

        1. 2.2.2.1

          There is definitely truth in what you say. However, their is also US gains from US- based sourcing alternatives to the Chinese goods.

        2. 2.2.2.2

          Greg, perhaps I was a bit too terse in referring to USA manufacturers. The folks we are trying to help in this effort are the employees of the factories in the USA. They don’t just get up and move to another country when their boss chooses to offshore, and they are the ones who have paid price of American benevolence in opening our markets to the Chinese while allowing the Chinese to get by without reciprocating. The effort now is to get the Chinese to reciprocate in various substantive ways.

          1. 2.2.2.2.1

            Yes.

      3. 2.2.3

        We structure our legal system to make their manufacturers have to pay tariffs to the US Treasury in order to have access to our market, and not give a hoot about benefits to the Chinese.

        What? Seriously, this is not grounded in reality. U.S. Importers pay these tariffs, not Chinese manufacturers. Everyone repeat after me: These tariffs are taxes that Americans pay.

        1. 2.2.3.1

          These are “taxes” only paid IF the now higher priced Chinese good is purchased rather than a (purported) US based alternative.

          This does shift purchase decisions away from China, and it IS the Chinese companies that are affected (as is the design of tariffs).

          It is a bit of “dust kicking” to out this as a direct US consumer tax — even as it is true that the lower priced Chinese option is “taken off the table” (or at least is marked up). Of course, sellers of these Chinese goods “could” not raise their prices and suffer lower margins, but that STILL is the choice of the seller.

          And any such “shift” to (again, purported) US sourcing DOES benefit US industry, which through increased revenues on the taxes that those (same-priced) US-sourced items benefits the US government (and as the argument goes, benefits US citizens). Of course (and of course missing), would be a more direct US consumer benefit of reimbursement from those increased taxes to lower citizen taxes.

          1. 2.2.3.1.1

            Agreed that some Americans will feel some economic pain. If this effort to get China to play fair had taken place some 10-15 years ago, the pain would have been less. Actually our economy is strong and the American economy has accommodated itself to the Chinese trade situation. Many American companies are playing a middleman role as the importer, logistics company, retailer of Chinese-made goods, etc. Their prospects are diminished by the tariffs coming on, but the value-added by manufacturing is greater and more valuable as a wealth generating activity than trucking goods from the port to store.

            1. 2.2.3.1.1.1

              Agreed that some Americans will feel some economic pain.

              Er, ok. How do you square this with your assertion in 2.2.2.2 that you are “trying to help… the employees of the factories in the USA.” Why try to help one group of Americans by hurting another group of Americans? I mean, maybe you have an idiosyncratic attachment to one or more members of the benefitted contingent of Americans, such that you are willing to count their interests as more valuable than the other contingent, but why should our government (who is not supposed to play favorites among its citizens) wish to hurt one group for the good of the others?

              If this effort to get China to play fair…

              What does this “play fair” even mean? How will we recognize when we have achieved this “fair” state of affairs?

              Actually our economy is strong and the American economy has accommodated itself to the Chinese trade situation.

              Exactly. So what are we hoping to accomplish with the present nonsense?

              [T]he value-added by manufacturing is greater and more valuable as a wealth generating activity than trucking goods from the port to store.

              How can you possibly claim to know this? Do you have some “value added” magic 8-ball that has told you this?

              1. 2.2.3.1.1.1.1

                [T]he value-added by manufacturing is greater and more valuable as a wealth generating activity than trucking goods from the port to store.

                How can you possibly claim to know this? Do you have some “value added” magic 8-ball that has told you this?

                Greg, if what I say is not correct, why do the Chinese want to manufacture and export and in the process enrich themselves. Manufacturing and exporting is the key to wealth generation; the Japanese did it; the Taiwanese did it; the South Koreans did it. And now the Chinese are doing it.

                Oh, by the way, when the USA became a global superpower in the 1870-1950 time frame, the USA did it!

                So, no, I do not have a magic 8-ball, just a knowledge of history.

                Oh, and by the way, if manufacturing is so insignificant, why are the Chinese so insistent on maintaining the status quo?

                1. (This is one of those “one whits” that Greg should pay attention to.

                  Greg, you really do appear to be a noob on these matters.

                2. Manufacturing and exporting is the key to wealth generation; the Japanese did it; the Taiwanese did it; the South Koreans did it. And… when the USA became a global superpower in the 1870-1950 time frame, the USA did it!

                  When I was in high school, I bussed tables at a local Mexican restaurant. I made $3.50/hr + tips. I thought I was rich.

                  Then when I graduated college, I took a job paying the princely sum of $15,000/year. Boy did I think that I was living.

                  Now I work as a lawyer and those pay scales seem almost absurdly inadequate to me. This is as much as to say that something can be a good way to become prosperous, without being a good way to stay prosperous. There is a reason that work that we once did is now done by countries that are presently as poor as we were back when we did that work. We will not grow richer by trying to climb back down the value chain.

                  [I]f manufacturing is so insignificant, why are the Chinese so insistent on maintaining the status quo?

                  Because they still have not graduated out of that stage of economic development. The U.S. has a GDP/capita of ~$57k, while China’s is ~$8k. That is to say, China’s GDP per capita is much less than ours (heck, it is less than Mexico’s, at ~$8.2k). If we try to copy China’s economic policies, then we can expect to be as poor as China. I am not sure why we would want to do that.

                3. Greg,

                  It is not as linear as you make it out to be.

                  Read some innovation science writing: there is a reason why R&D migrates TO manufacturing.

            2. 2.2.3.1.1.2

              [Citation Needed]

              1. 2.2.3.1.1.2.1

                I suggest that this is not an area to which a simple citation is possible.

                Instead, you may want to learn some beginning to intermediate macro-economics.

                1. Maybe you should recognize what topics need citation (and remember the forum).

                  Also, I do not recall you providing citations for any of your views (you might want to give Malcolm back his Accuse Others meme)….

              2. 2.2.3.1.1.2.2

                You do so much hand waving, you must be a former Miss America.

                This made me laugh. Thanks for that.

          2. 2.2.3.1.2

            “It is a bit of “dust kicking” to out this as a direct US consumer tax”

            Only because you put the word “direct” in there. The tariffs are a tax on US consumers who consume Chinese goods. A tax on a product is a tax whether or not that product has alternatives.

            1. 2.2.3.1.2.1

              “who consumes Chinese goods” being the operative portion of the phrase.

              Yes, I did put “direct” there precisely because “consumer tax” was being used in a “universal” sense.

              Thank you for corroborating my correction.

    3. 2.3

      “China is under no obligation to structure its legal system for our benefit, ”

      not yet

      That’s kind of the point.

      1. 2.3.1

        not yet

        What is that even supposed to mean?

        What possible reason could one have to believe that tariffs will make China act in a manner more consonant with anything that could be meaningfully described as “the interests of the United States”?

        1. 2.3.1.1

          Adam Smith has a word for you.

          (yes, China may recognize this first, as I indicated elsewhere)

        2. 2.3.1.2

          Dang, Greg.
          Are you and MM colleagues on the “Google and Chinese get to conquer the world” train?

          1. 2.3.1.2.1

            For the record, I am distinctly opposed to world domination by either Google or the PRC. I am rather lost, however, as to how a tariff escalation is supposed to forestall the occasion of either such undesirable outcome.

        3. 2.3.1.3

          “What is that even supposed to mean?”

          We want them to structure their legal system (the part that affects certain economic things anyway) for our benefit. Herp. Derp.

          “What possible reason could one have to believe that tariffs will make China act in a manner more consonant with anything that could be meaningfully described as “the interests of the United States”?”

          Tariffs are a mere opening salvo. A shot across the bow. It is a message: “get your shit together and give us some goodies we want in this deal or we will be stopping you from getting goodies from the deal (which you desperately want/need) gradually with tariffs/other means until we up and cancel the deal.”

          Why are nooblars to negotiation such nooblards?

          1. 2.3.1.3.1

            “What possible reason could one have to believe that tariffs will make China act in a manner more consonant with anything that could be meaningfully described as “the interests of the United States”?”

            Tariffs are a mere opening salvo. A shot across the bow.

            The careful observer will note that there is no actual answer to the question. Just an (indifferently) artful changing of the subject. One can draw one’s own conclusions from that.

            1. 2.3.1.3.1.1

              that there is no actual answer to the question.

              Much like you often do, eh Greg?

              Just an (indifferently) artful changing of the subject.

              I chuckle as that is more than what you bother with.

              One can draw one’s own conclusions from that.

              Absolutely.

              How are the shards of your former glass house?

          2. 2.3.1.3.2

            We want them to structure their legal system… for our benefit.

            What does this benefit look like? How will we know it when we see it?

    4. 2.4

      “It seems beneath the august dignity of the United States to grouse about that.”

      Not at all. If they’re benefiting hugely off a trade deal that we benefit off of barely at all that means we have leverage and can grouse all we like or scrap the deal. Dignity demands such. Otherwise keeping the deal is just helping China, supposedly a would be rival.

      “Also, what is “U.S. technology”? If we are talking about government-developed technology, then the obvious solution is for the U.S. government—which controls the disclosure of such technology—not to share it with China. If, however, the term merely means “technology developed in the U.S. borders,””

      All the above and by us corps abroad in some situations. Why would anyone think differently?

      “So? Look, there are only two possibilities here: either a company thinks that these requirements that the Chinese government imposes as a precondition of doing business in China are—in order to gain access to the second largest market in the world—worth the cost, or else they are not worth the cost. I expect that some companies decided that the CN requirements are not worth the cost, as is their right.”

      So we want to lower dem costs herp derp. They shall bend the knee.

      “The fact that there are companies headquartered in the U.S. that choose to business in China despite these rules, however, tells me that these companies consider the benefit of business in China to outweigh the costs. ”

      Right we want there to be more such companies, thus we want those costs to go down. herp.

      “The government is only rarely well qualified to step into the middle of such a negotiated exchange.”

      The gubmits are not “in the middle’ of the exchange. The gubmits are setting conditions of the exchange beforehand, and we want those conditions to be to our Merican corps benes more than they are now. Chyna will bend the knee.

      “And more fool, China. It is not our responsibility, to save China from its own mistakes.”

      Not technically correct, as they are commie and we are committed to correcting commie errors the world over. But even so, in that particular instance them being the fool is to the detriment of our merican corps, they will bend the knee.

      ” If one is negotiating to achieve something”

      The negotiation is to get them to BEND THE KNEE in all respects, on all fronts, snooping, policies that f us, etc. etc. Why are you such a weenie?

      We get that you don’t like Donny T and have a hard time understanding what “standin’ urp for our companies” means and all, but just let Donny T handle the manstuff ok?

      1. 2.4.1

        If they’re benefiting hugely off a trade deal that we benefit off of barely at all…

        Well, yes, if they benefit from the exchange, and we do not, then we should not make that exchange. However, all sales between the U.S. and China are fully voluntary on both sides. They do not buy anything from us at the point of a bayonet, and we do not buy anything from them at the point of a bayonet. That tells me that we are not “barely at all” benefiting from the exchange. We get just as much value as we give, or the exchange would not take place.

        Right we want there to be more such companies [headquartered in the U.S.]…

        Why? Why should I care where a company is headquartered? Proctor & Gamble (to pick a merely random example) does not care any more about the well being of the U.S. or American citizens than about the well being of Armenia and Armenians. With vanishingly rare exception, most companies headquartered in the U.S. will sell American and Americans down the river in the blink of an eye if they think that doing so will benefit their bottom line. I think that we should be as indifferent to the welfare of such companies as they are to our welfare.

        It is not “manly” to jump and shuffle after the affairs of corporations. It is slavish and unbecoming of the dignity of a free and sovereign people, such as the citizens of this great nation.

        1. 2.4.1.1

          Wow, you are a noob.

        2. 2.4.1.2

          “Well, yes, if they benefit from the exchange, and we do not, then we should not make that exchange. ”

          We’re not talking about an exchange. We’re talking about an exchange AGREEMENT. We barely benefit from the AGREEMENT (the trade pact, not the actual trades that go on under it). They benefit massively from the AGREEMENT, to the tune of a couple of points GDP growth every year allegedly. There is nothing that can “tell you otherwise”, thems the facts, look them up if you like but I’m not citing them atm.

          “Why? Why should I care where a company is headquartered? ”

          Where it is herp headquartered is of little concern, what matters is where they’re making jerbs, doing business/making things/servicing things, paying taxes, contribing to community etc. Also, you seem to be focused on megacorps/large corps. It might surprise you but the majority of corps in the US are small corps by US natives.

          1. 2.4.1.2.1

            We barely benefit from the AGREEMENT (the trade pact, not the actual trades that go on under it).

            What does this even mean? The point of a trade agreement is to facilitate trade. One benefits from the agreement by benefitting from the trade.

            * If we benefit from the trade with China, then we ipso facto benefit from the agreement that makes that trade possible.

            * The fact that people voluntarily engage in this trade necessarily implies that they benefit from it.

            * It follows, then, that we actually are benefitting from the agreement.

            Keep your eye on the ball. Our benefit from the agreement does not have to be of the same sort as their benefit in order for there to be a benefit to us. Life is bigger than the zero-sum thinking that lurks behind your posts up and down this thread.

      2. 2.4.2

        6, I agree with much of what you say, but not the “bend the knee” business. Making them grovel is not needed and in fact causes them to react emotionally and resist the legitimate demands.

        I am concerned that Donny T is causing the Chinese to stiffen their backbones by essentially making a “bend the knee” demand instead of making the negotiation a conventional business deal. My understanding is that Asian cultures make “saving face” a critically important feature, and demanding apologies, knee-bending etc. is not helpful.

        1. 2.4.2.1

          My understanding is that Asian cultures make “saving face” a critically important feature

          Like most cultures when you stop and think about it (for two seconds).

          1. 2.4.2.1.1

            Many cultures do not have that aspect — certainly not to the degree of several asian cultures.

            Of course, the comment offered here was one of degree and nuance, something that routinely escapes you, Malcolm.

            1. 2.4.2.1.1.1

              Many cultures do not have that aspect — certainly not to the degree of several asian cultures.

              Sounds like you’re an expert on Asian cultures and the relative degrees to which their behavior can be explained by “face saving.”

              Have you written up your research?

              1. 2.4.2.1.1.1.1

                No need – I have studied the culture extensively (so to your smarmy point, YES, I can be considered an expert – especially in context and in relation to your feelings).

        2. 2.4.2.2

          “6, I agree with much of what you say, but not the “bend the knee” business.”

          A gril doesn’t “agree with” the bend the knee business. Imagine my surprise! Complete and utter shock!

          “Making them grovel is not needed”

          Bending the knee is not grovelling and nobody is making them grovel. Grils. Whew. Xi shall be named lord paramount of chyna (or whatever, allowed to remain king minor of the commies, all lowercase in disrespect).

          link to gameofthrones.wikia.com

          link to collinsdictionary.com

          “in fact causes them to react emotionally and resist the legitimate demands.”

          Let them behave as whamin for as long as they please. The mans will come around. Observe the construction of a patriarchal power structure in real time.

          “I am concerned”

          Grils usually are during the formation of a patriarchal power structure. That’s one reason why they don’t form patriarchal power structures. But don’t worry, it is a time honored tradition for you to be concerned, you are in good company with millennia of women. When it all works out splooshes happen and babies pop out. It’s literally basically the story of humanity.

          “My understanding is that Asian cultures make “saving face” a critically important feature, and demanding apologies, knee-bending etc. is not helpful.”

          Bending the knee will be saving face here shortly, this round or the next. Herp. That’s how it works.

  8. 1

    Would love to see China reply by noting that the US Supreme Court has written patent law to deny patent coverage in violation of international treaties.

      1. 1.1.1

        Come Paul – treatment if clearly “technical” computing arts being denied patent protection under the “Gist/Abstract” sword…

      2. 1.1.2

        It’s been awhile since I stopped and read some Greg Aharonian email feeds – today’s though is a doozy and has one item directly on point here, Paul.

        1. 1.1.2.1

          LOL

          He’s still around?

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