China stealing from the US? Nothing new in pinching each other’s best ideas

Chris Johns: Trump may rail, but intellectual property theft litters history

If – and I use that word carefully – there is any substance to Donald Trump’s ideas about global trade it is to be found in the notion that China is stealing a lot of corporate America’s best ideas. In the jargon it’s called intellectual property theft. A lot of people have been exercised for years about the ways China seems to gets its hands on innovations that originate in the United States (and, occasionally, elsewhere).

There is nothing new in any of this. Analysts are reaching back into economic history to point out that countries have been pinching each other's technologies for a very long time. The economist Ed Conway reminds us that the current darling of both Broadway and London's West End, Alexander Hamilton, was a prime exponent of the dark arts of cheating, stealing data and technology from Britain to pass on to America's nascent industries.

John Cochrane, a leading US economist, also reminds us of history with reference to the American spies who stole the design of power looms from Britain; this, as much as anything, kick-started US manufacturing industry. American publishers regularly reprinted Charles Dickens's novels without paying the author. Intellectual-property chicanery is neither recent nor uniquely Chinese.

Economics is very clear about things that cost nothing to reproduce: they should also cost nothing to buy

Ideas are different from physical capital, such as land, machinery and buildings. All represent the basic infrastructure of the economy, but the salient feature of an idea is that its marginal cost is zero: once the idea has been had it costs nothing to have it again.


Economics is very clear about things that cost nothing to reproduce: they should also cost nothing to buy. In principle things like new software programs should be disseminated as widely and at near zero price to anybody who wants them. That's the economic-efficiency argument that, if followed, maximises the benefits of the idea to society as a whole. Try telling that to Bill Gates.

China – and any other country or region interested in economic growth – is as entitled as any other to try its hand at economic development. For all of Trump’s Twitter criticisms of foreign competition, American GDP per head is still more than seven times China’s.

Critics who cry foul at intellectual-property theft via hacking or other forms of industrial espionage have a point. But many of the US companies that Donald Trump seems so keen to protect give their technology to the Chinese. It's not stolen. Facebook and others choose to reveal their source code. That's their choice; they don't have to. And anybody is free to exploit it, not just China.

If nobody can sell an idea, of course, then there isn’t much financial incentive for having one. That’s why there is patent law and all the other efforts directed to erecting barriers to the free transmission of innovation. And those laws, in fact, seem to work rather well. Just ask any of the buyers – from anywhere, not just in the United States – of pharmaceuticals.

Those companies that freely give away a lot of their best ideas also seem to be doing rather well. If the US is being damaged by technology transfer it’s not evident from the profitability of its companies. Those earnings have been on a roll: the companies that make up the S&P 500 index are expanding profits by 20 per cent or more. In fact, on current forecasts, American industry is forecast to grow earnings by another 30 per cent over the next 12 months. Anyone wondering about the effects of Trump tax cuts need look no further.

The US companies that Donald Trump seeks to protect are just as determined to keep giving away much of their computer code for free

How big a problem is technology transfer? Cochrane sees it as a nonissue. His argument is perhaps even more interesting given that he is on the right of American politics. Free-market economists who follow their own logic can come up with radical-sounding answers. Cochrane sees only the efficiency gains that accrue to everybody from freely sharing stuff that costs nothing to produce. Everybody really does benefit. The only people who will gain from charging for things that should be free are firms already making monopoly-style profits. And everybody else loses.

Donald Trump seems determined to keep American ideas from crossing the border. The companies that he seeks to protect are just as determined to keep giving away much of their computer code for free. In a way that’s what Mark Zuckerberg’s congressional testimony this week was all about: Facebook is not going to tear up its business model.

This is not just a row between the Trump and China but also a family squabble within the US – albeit rather an odd one, and an argument that Trump probably doesn’t know he is having. And even while he has been picking fights with some surprising enemies there has been a quiet announcement that the White House economics staff have been asked to look at rejoining the Trans-Pacific Partnership, a tariff-lowering trade agreement between 12 countries.

That became 11 countries when Trump abandoned it almost as soon as he took office. This week’s announcement that he is thinking of reversing his decision was quite a U-turn – an example of a good idea, freely available, for once making it into the Oval Office.