In August of 2017, the Trump Administration began the Section 301 investigation into China’s laws, policies, practices and actions that have had harmful effects on U.S. intellectual property. On March 22, the results of that investigation were released, and soon after, the administration indicated that the U.S. will impose tariffs amounting to tens of billions of dollars on an array of Chinese goods.

China has reacted to the announcement of tariffs on Chinese goods shipped to the U.S. by targeting U.S. goods for higher tariffs. While the U.S. Section 301 investigation was intellectual property based, the goods targeted for higher tariffs by the U.S. and China have no correlation to intellectual property, and the administration views the harmful effects on intellectual property as contributing to unfair trade and a massive trade imbalance favoring China.

As both the rhetoric and the estimated value of tariffs to be imposed on goods going in both directions continues to escalate, the underlying issues that prompted this round of friction and the initial announcements of U.S. sanctions and China’s reaction are, to some extent, a reprise of the past. The only real unknown this time around is the ultimate outcome.

The U.S. action, and China’s reaction, are predictable for those who recall the events of 1994 and 1995. Then, as now, intellectual property issues were at the heart of U.S.-China trade tensions. At that time, the U.S. and China engaged in negotiations that were intended to prod China to take more aggressive steps to protect intellectual property belonging to U.S. entities. After months, however, the U.S. concluded that the negotiations had failed.

In February 1995, the U.S. announced that it would impose tariffs on a published list of Chinese goods. China reacted to the announcement of tariffs by identifying U.S. goods that would be subject to tariffs. China targeted a limited number of products and sectors that would be affected by the tariffs, but did not include grain and other industrial products. China also suspended negotiations over automotive projects being pursued by the then “Big 3” American auto companies. In addition, the clash over intellectual property caused major concern for Boeing whose biggest foreign market was China.  A last-minute agreement in late-February of 1995 averted the actual imposition of tariffs.

The events of 1994 and 1995 should have provided some insight and predictability to what China would do if the U.S. announced sanctions this time around. Over the past 23 years, China has become much more globally integrated, economically-speaking, and has learned to use intergovernmental organizations such as the World Trade Organization as fora to argue issues of violations of international laws and agreements. Moreover, the massive increase in trade between the U.S. and China should have led U.S. officials to consider the possibility that China’s response would not be as muted as it was in 1995.

The ramifications of a trade war today are much greater. In 1994, U.S.-China bilateral trade was estimated at less than $50 billion dollars; a small percentage of what it is today. In addition, the significantly increased level of trade in various sectors places more products and workers at risk.

While intellectual property issues were at the heart of the Section 301 investigation, the sanctions as announced by the U.S. and China will have economic consequences that reach far beyond intellectual property should the two governments fail to resolve this dispute.

 

This post was written by Timothy Trainer, coauthor of Customs Enforcement of Intellectual Property Rights. Trainer also is the founder of the Global Intellectual Property Strategy Center, P.C., a consulting firm representing domestic and international clients, in Washington, D.C. Follow Trainer on Twitter @TTrainerglobal