China And Intellectual Property
SCOTT DETROW, HOST:
President Trump has threatened new tariffs on China. He says he's considering taxing imports on $100 billion in goods. That's on top of an earlier plan to impose tariffs on $50 billion worth of goods, including steel and aluminum. China has retaliated by announcing tariffs on American soybeans, pork and other products. And the president has pointed to one reason for the tariffs - intellectual property.
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PRESIDENT DONALD TRUMP: We have a tremendous intellectual property theft situation going on, which likewise is hundreds of billions of dollars. And that's on a yearly basis.
DETROW: Dan Eberhart runs Canary, LLC. They're an oil field services company based in Denver. He manufactures precision valves in the U.S. and in China. And he's on the line now. Dan, thanks for being with us.
DAN EBERHART: Thank you for having me today.
DETROW: So your company has a long history of working in China, manufacturing products in China, but there's a lot of things that companies have to do in order to get that process going, including this technology transfer. Can you walk us through all the different compromises that American companies have to make in order to make products over there?
EBERHART: Sure. So technology transfer to us means we do the engineering here, and we usually do proof of concept and technical testing on the prototype and a small batch of stuff. But eventually, we provide our engineering to our Chinese partners, and this is basically similar to providing blueprints on a construction site.
DETROW: So what's to stop your Chinese partner from just making your products and selling it to others?
EBERHART: I don't think a whole heck of a lot to be honest with you. And we've had a couple of isolated incidences of that in the past and have terminated our relationship with folks.
DETROW: We've talked to heads of companies who are really concerned about turning over this information. And they've said it's just not worth doing business there; seems like you're OK with this trade-off.
EBERHART: Well, we're OK with it. And, quite frankly, we've taken a very serious look at Vietnam because the labor rates are actually cheaper in Vietnam, but we're unable to find a scenario that worked for us to move any of the manufacturing from China. For us, the problem is the labor rates in China are roughly equal to what the health care costs are in America.
DETROW: Are there any products that you've taken care to produce in the United States instead of China because of the trade-off you have to make when it comes to the intellectual property?
EBERHART: Sure. So we do manufacture in the U.S., but I would say, you know, it's roughly 15 to 25 percent depending on the year versus China. But it's really hard to be competitive with the pricing when your competitors are also buying from China and also buying from India.
DETROW: So when I hear you talk about this, it seems like intellectual property concerns don't seem to be at the top of your list in terms of concerns or things that you're worrying about when you look at your business and when you look at your manufacturing in China.
EBERHART: Trump is absolutely right. In general, they're taking our IP. They don't respect our IP. And I think something should be done. And it's something the prior administrations didn't stand up for at all. Where I disagree is I think the tactics are wrong, and I think that leading us into a trade war is disruptive to supply chains and, you know, potentially not good for the Republicans in the midterm elections. What I think the administration should do is back channel communications, negotiations, have a summit and use the international organizations such as the WTO.
DETROW: That's the World Trade Organization, yeah.
EBERHART: Yeah, WTO, yes - to try to effect change without throwing a wet blanket on the overall economy.
DETROW: That's Dan Eberhart. He's the CEO of Canary, LLC, an oil field services company based in Denver. Dan, thanks a lot.
EBERHART: Thank you for having me.
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