President Trump is pursuing a wrong-headed, impulsive, poorly thought-out policy in his “easy to win” (his words) trade war with China. In the process, he is costing the average American family an estimated additional $1,000 this year alone in the increased costs of consumer goods. This does not count the cost to taxpayers of the $28 billion (and counting) of bailouts to adversely affected farmers.
Trump’s trade war is not only misguided; it is also misdirected. The central issue pitting the U.S. against China is not trade. Instead, it is the continuing grand theft of up to $600 billion annually (per the U.S. Trade Representative) of U.S. intellectual property (IP) — patents, trademarks, copyrights, trade secrets, etc. — that then materializes in pirated and counterfeit Chinese products, weapons systems and technology. A recent survey found that 1 in 5 U.S. companies say that they have been victims of Chinese IP theft.
Tariffs, as any casual student of 20th century American history can attest, are the worst way to proceed in a trade dispute. Trump, being ignorant of American history, has no idea of the destruction his reckless tariff policy causes.
We have anti-dumping, countervailing duty and other laws that go a long way toward effectively managing Chinese trade abuses. What we lack is any sane policy for dealing with the real issue: Chinese IP theft, a problem that goes back at least a generation.
A former client of mine, a senior official of a major trade association, traveled to China once a year in order to complain about IP theft of her member companies’ products and lobby the Chinese government to crack down on the thieves. She always came back (1) shocked by the volume of bogus products she saw, and (2) frustrated by the Chinese government’s intransigent refusal to take any action.
The Trump administration, because it either does not know about or understand the weapons it possesses, is doing nothing about this except for a lot of meaningless whining. Take, for example, the 2019 Annual Report to Congress submitted by the Office of the Intellectual Property Enforcement Coordinator, an obscure executive branch organization rendered more obscure by the Trump administration’s ill-conceived approach to China. This virtually unreadable document says it all: the administration threatens China with tariffs in hopes that they will force the world’s largest IP counterfeiter and pirate to mend its ways. It is an understatement to say that this tactic has been a predictable, monumental failure.
Instead, there is a very simple strategy that would cause China immense pain where tariffs do much less damage: Cut off China’s access to the services and benefits of the U.S. Patent and Trademark Office (PTO).
The Chinese are flooding PTO with trademark applications. Since 2013, the number of Chinese applications has increased from 4,112 to approximately 75,000 today, an almost 2,000 percent increase. At the current rate, the Commissioner of Trademarks says that by 2023, Chinese filings are expected to represent at least one-third of total U.S. trademark filings.
Why is China doing this? Two reasons: First, Chinese entrepreneurs are eager to enter the U.S. market, still the largest consumer market in the world. Second, by flooding PTO with filings, China delays rival U.S. entrepreneurs from getting their trademarks registered and protecting their IP. Sales of new Chinese products in the U.S. are a major contributor to the Chinese economy. Denying China the right to file for trademark protection in the U.S. would cause it considerable economic pain. Instead of hurting U.S. farmers, manufacturers and consumers by imposing tariffs on Chinese goods, foreclosing U.S. trademark protection would help the citizens and companies a President is supposedly sworn to protect.
Squeezing China this way has a much better chance of inducing Beijing to crack down on Chinese IP bandits than do tariffs.
U.S. trademark laws do not discriminate with respect to the citizenship of the applicant. Any applicant may apply for a trademark on the same basis as a U.S. citizen. If it wishes, Congress can change that law tomorrow and prohibit Chinese companies and individuals from filing for protection in the U.S.
If Congress doesn’t act, there is another way forward: PTO should consider Chinese trademark (and patent) applications only after dealing with U.S. and other countries’ filings. It does not need Congress to do this.
These actions are the most effective way to inflict real pain on China’s abuses.
Canandaigua Academy graduate Richard Hermann is a law professor, legal blogger, author of seven books and part-time resident of the Finger Lakes.