Beware Excuses for Protectionism

by Don Boudreaux on December 4, 2018

in Myths and Fallacies, Trade

Here’s a letter to the Wall Street Journal:

Several deep breaths are required before we heed John Bolton’s call to ban imports that contain intellectual property allegedly stolen from Americans (“John Bolton Calls for Tougher Stance on Intellectual Property Theft,” Dec. 4).

History is littered with privilege-seeking firms greedily grabbing excuses, regardless of how flimsy, and magnifying these in the public’s eye into problems vastly bigger than they really are. Because the actual extent of Chinese IP theft is practically unknowable by the general public, protectionists have great leeway and incentive to overstate the problem and, hence, to stir up support for protectionism far heavier than is justified by the actual size of the problem (and perhaps so heavy that the cost of this protectionism exceeds the cost of whatever IP theft it might prevent).

Consider this plausible scenario: American firm Acme Co. seeks a joint-venture with a private Chinese firm that bargains for the disclosure to it by Acme of some of Acme’s intellectual property. Because Acme voluntarily agrees to this disclosure, no theft is involved. But if history is any guide, protectionists in the U.S. would attempt to portray Acme’s intellectual property as being forcibly transferred and, hence, under Mr. Bolton’s scheme, move to block any and all imports that might possibly contain even the tiniest fraction of the IP that Acme voluntarily disclosed to its Chinese partner.

Those who doubt that history is here a reliable guide can remove their doubts by considering that IP voluntarily disclosed by American firms as a condition for their being allowed by Beijing to operate in China is routinely alleged by American protectionists to be forcibly transferred. Yet how, from the perspective of American producers and consumers, does such disclosure bargained for by Beijing differ from the disclosure bargained for by the private Chinese firm? It doesn’t differ.

There is, indeed, a difference – but it’s a difference only from the perspective of the people of China. Unlike a private Chinese firm bargaining in a market transaction for IP disclosure from a partner firm, Beijing’s demand for disclosure is an in-kind tax on foreign companies doing business in China – a tax that discourages some firms from doing business there. One result of this tax is a slower-growing Chinese economy.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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