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Intellectual Property Theft Dispute Is Unlikely To Start A Trade War

By Rupert Hargreaves. Originally published at ValueWalk.

According to Dennis C. Blair, a former director of national intelligence, and Keith Alexander, a former director of the National Security Agency, intellectual property theft is costing the US economy $600 billion a year. Writing in the New York Times, the duo calls this loss the “greatest transfer of wealth in history” and blame China for the majority of this theft that is costing US companies 3.2% of GDP every year.

Intellectual property theft is the latest target of the Trump administration. Intellectual property theft covers a broad spectrum covering everything from counterfeiting fashion designs to pirating movies, video games and infringing patents of proprietary technology and software.

On Monday, Trump authorized an inquiry into China’s alleged theft of intellectual property, authorizing US Trade Representative Robert Lighthizer to investigate whether to launch a formal investigation of China’s trade policies.

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Intellectual property theft revision to lead to trade war?

Trump had been expected to seek a so-called Section 301 investigation earlier this month but delayed the announcement as tensions with North Korea flared. Section 301 of the Trade Act of 1974, allows the president to unilaterally impose tariffs or other trade restrictions to protect US industries from “unfair trade practices” of foreign countries.

This move by Trump is the latest step towards a full-blow trade war been the US and China, something most analysts agree would be hugely damaging to both countries and global trade.

Indeed, according to analysts at Nomura, if the US does impose sanctions on China, the most likely form would be penalty tariffs on Chinese exports related to intellectual property issues, areas such as mechanical and electrical products would be hardest hit. Machinery and mechanical appliances account for around 44% of China’s exports to the US and base metals account for another 6%--another sector that is in Trump’s crosshairs. US government has already begun a Section 232 study on imports of steel and aluminum products.

Nomura’s research suggests that the imposition of an across-the-board 45% import tariff, “could lead to China’s export growth to the US falling by 28 percentage points (pp),

implying a 25% decline in China’s overall trade surplus (all else being equal).” This is the worst case scenario.

These restrictions would send a shockwave through Asia’s economy. Nomura notes that many Asian economies are significant suppliers of high value added parts for Chinese manufacturers, and as a result, some may be more exposed to US trade policy than China itself.

Overall, however, Nomura’s analysts do not believe that Trump is actually planning to start a Sino-US trade war. Instead, they note, it’s much more likely that he is trying to raise the administration’s bargaining power to reach a better longer-lasting solution.

Intellectual Property Theft

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