AUDIE CORNISH, HOST:
Another U.S. sector that relies on the Chinese market is electronics. U.S. companies are pressured to share their industrial secrets if they want to do business in China. The White House says it's a form of intellectual property theft. President Trump argues that tariffs could recoup losses from China's IP theft. Scott Kennedy is a specialist on China's economy at the Center for Strategic and International Studies. Thanks for coming on the program.
SCOTT KENNEDY: Thank you.
CORNISH: The president has used the term theft to describe what's going on. Is it theft? Like, what are we looking at?
KENNEDY: So I think in some areas, we are looking at direct theft. In some areas, we're looking just at coerced pressure where things are, on paper, voluntary. But in reality, you see a lot of handing over of technology because there's really no other choice if you want to enter the Chinese market.
CORNISH: How does that policy work? I'm an American company owner. I say I want to do business in China. Walk me through what the regulations are that would lead me to start to hand over some of my intellectual property.
KENNEDY: If you want to invest in China, produce in China, sell in China, you will need a Chinese partner that will share ownership of your company. You will need to contribute technology, patents, licenses to that joint venture, which you will share. And you will do R&D together in which the Chinese company will gain a stake in.
CORNISH: Can I ask you about one example?
KENNEDY: One example is a Massachusetts company that made semiconductor chips that are really important in wind power. And these chips were developed by them. They owned the IP. But their Chinese partners were able to essentially steal the technology out from under them, open up an alternative production facility and take the market and leave this American company with no market and no technology on its own that it controlled.
And that is not what happens to American companies every day in China. Usually it's less direct, less explicit. But the challenges of operating in China for American companies that have advanced technology are quite mighty.
CORNISH: It sounds crazy frankly 'cause they would never do that here in the U.S. - right? - share with a competitor. Is that market just that good that they need to break into it, will give up anything?
KENNEDY: China is the fastest growing, largest market on the planet ever in history. You take your product. Multiply it by 1.4 billion potential consumers. That's a big opportunity for anybody. General Motors sells more cars in China than anywhere else. Its profits come primarily from China now. Qualcomm - 65 percent of its market for its chips are in China now. So the structural power that China has without even lifting a finger puts companies on the defensive to need to comply.
CORNISH: China at times has said, look; we're going to crack down on theft of U.S. technology. But has there been any movement on that front?
KENNEDY: Over the last 30 years, China has joined every international intellectual property rights agreement. They have laws for copyright, patent, trademarks. They have tried to strengthen implementation of those laws. Yet Chinese high-tech industrial policy is about acquiring technology. So you have a conflict between trying to improve their legal system on the one hand and achieve these very ambitious industrial policy targets on the other.
So the political signals that leading Chinese companies get is that if it's something that the Chinese government really has identified as very important to the national interests, the government may look the other way.
CORNISH: So when you look at the policy that this White House is putting forward, are tariffs the way to go? Is this the way to try and convince China to change its ways?
KENNEDY: I think that unilateral actions including tariffs, the WTO case the U.S. is going to file, the limits on Chinese investment could work, could put enough pressure on China to adapt. But we need to recognize that a trade war needs to be fought smartly, not just tough. And so we are potentially going to lose this trade war, which will leave Chinese industrial policy, including the protection of intellectual property, in a worse situation than we currently find ourselves.
CORNISH: Scott Kennedy is a specialist on China's economy at the Center for Strategic and International Studies. Thank you for coming in to speak with us.
KENNEDY: Happy to do so.
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