How the US and China can find common ground in an era of techno-nationalism
- Because the US increasingly views China as a security threat, the debate on intellectual property rights goes beyond economic concerns
- Given that the challenges of IP policymaking transcend US-China rivalry, a wider forum, on the lines of the G20, could help broker a political consensus
Underpinning US-China technology competition is the recognition that innovation-driven growth is central to long-term economic development. Because many people can make use of the same idea, broad dissemination of knowledge is beneficial.
Notwithstanding recent disagreements over technology transfer, the two countries have pursued similar growth objectives at comparable stages in their development, using IPR protection as a policy tool towards that end. The crux of the debate over IPR is the trade-off between access to knowledge and incentives to innovate.
Having reached the innovation frontier, the US understandably wants a strong system to protect IPR. If protection is too lenient, ideas are essentially free and copying goes unchecked, providing little incentive to undertake costly investment in new technologies. Instituting more stringent protection can help overcome this stagnation by granting monopoly rights to innovators.
From China’s point of view, technology acquisition has driven its impressive growth from low- to upper middle-income status. Realising the importance of technological upgrading and its own limited capabilities in important sectors, China has designed relatively lax IP laws to encourage knowledge inflows from abroad.
The major reason the US and China cannot agree on the appropriate strength of IPR protection is that they differ in their domestic innovative capabilities, which are closely tied to their respective development levels. Because emerging economies rely on the innovations of advanced economies to grow, multilateral agencies, such as the UN Conference on Trade and Development and the World Trade Organisation, have underscored the importance of cross-border technology transfer to developing countries.
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Differing political systems present yet another roadblock to mutual understanding. US companies look out for their own interests, and patents are primarily used to exclude others and safeguard personal returns. This creates winners and losers: producers gain monopoly rights, driving up prices for consumers and forcing out competitors. Democracies must be responsive to these distributional effects and seek to balance the interests of various constituents.
In contrast, China’s authoritarian system permits much greater latitude to pursue longer-term national interests without domestic political constraints. China views IP as part of society’s collective push towards innovation leadership; for instance, it sets explicit targets for the total number of patents.
Bolstered by nationalistic support, China is well equipped to weather resistance from the international community. Despite being seen as flaunting international norms, China’s technology acquisition strategy is not unprecedented. Others such as Japan, South Korea and Taiwan similarly disrespected IPR in prior decades, but as their innovative capacities matured, such practices were eventually abandoned.
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In light of such complexities, the White House negotiation strategy misses the mark for two reasons. First, it began with a misguided view that it could use punitive tariffs to quickly force China to reform and has since pivoted to a phased approach. A broad consequence of China’s rapid development is that its institutions lag behind its economic weight, fostering the sense that China is not a responsible stakeholder.
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Rather than pursuing a bilateral solution, a wider forum is needed to discuss technology transfer in an era of rising global techno-nationalism. Reaching a more robust political consensus may require something like the G20 format, where a broader spectrum of interests is represented. If China is to realise its tech ambitions, it will be in its own interests to push for such an initiative.
Yukon Huang is a senior fellow at Carnegie Endowment for International Peace. He is author of Cracking the China Conundrum: Why Conventional Economic Wisdom is Wrong. Jeremy Smith is a junior fellow at Carnegie