Friday, January 4, 2019

Made in China, Stolen from America

Ripping the Chinese with a tariff threat sends shock waves through the business community and rattles an already shaky stock market. It also, to no one's surprise, emboldens the political left to double down in its criticism of President Trump. Can't he do anything right?

Why, after all, rile the Chinese and trigger a trade war? The timing is terrible. And no one ever wins a trade war. So what if there is an imbalance? We're still prospering.

But as Martin Feldstein pointed out in a recent Wall Street Journal article, the real issue isn't a trade deficit. The real issue is theft of American technology, cyberattacks that knee-cap U.S. businesses and threaten national security.

Chinese hackers routinely siphon off classified military data -- new aircraft design, missile delivery systems, submarine tracking defenses. The thefts, which have become commonplace in recent years, are now threatening to compromise our most advanced technical systems. A defense official was quoted as saying, "They are looking for digital weaknesses. An asymmetric way to engage the United States without ever firing a shot."

On the business side, Chinese lawlessness has reached new heights. It is now common practice for China to require technology transfer as a condition for doing business. Sell us a plane? Okay, first give us the classified specs on lift and the new technology on in-flight navigation.

Design and production secrets are one thing. Patents are something else. The Chinese have been stealing U.S. patents forever. Not just on defense items, but on everything. Acknowledging patent validity and paying licensing fees is an unknown concept in Beijing.

Here's a personal story. Many years ago, when I was heading R&D for a chemical business, a brilliant  chemist in our operation devised a breakthrough process for making a specialty chemical -- a high-value flavor enhancer for the food industry. The new process halved the manufacturing cost and ensured a dominant market position.

We, of course, patented the process and the product-by-process as was the practice in those days. Some time later a Chinese firm entered the market and significantly undercut our price for the flavor enhancer. We analyzed the Chinese product and found, to our naive surprise, an impurity profile identical to that of our product. The Chinese had ignored our patent and used our patented technology to leapfrog into the market, illegally.

That was many years ago. Theft of intellectual property was going on way back then. Our loss was small potatoes compared to what's happening today.

Feldstein writes, "Beijing's plan is to dominate global markets [by 2025] in a range of high-tech products. Its strategy is to give large subsidies to state-owned companies and supplement their research with technology stolen from American and other Western companies."

The FBI recently told Congress that Chinese theft of American technology is the biggest threat to our national security today and a serious drag on economic growth.

That's why Trump is threatening massive tariffs. Let's hope he stands fast. There's a lot at stake.

No comments:

Post a Comment