Trump's steel tariffs are nothing compared to the looming war over intellectual property theft with China

Andrew Harnik/AP

Donald Trump with Xi Jinping.

• US President Donald Trump's steel tariffs have caused China to warn of trade wars and potential damage to the US economy, but steel tariffs are nothing compared to the coming fight over intellectual property theft.
• Experts estimate that Chinese intellectual property theft costs the US $600 billion a year, possibly the "greatest transfer of wealth in history."
• But by angering the international community with protectionist practices like tariffs, experts question how Trump will rally sufficient support against China's intellectual property theft.

President Donald Trump hinted on Wednesday at what experts predict will become the major economic and diplomatic clash between US and China - and it will make steel and aluminum tariffs look like small potatoes.

After tweeting that he had asked China to come up with plans to reduce the US trade deficit, Trump brought up a separate, but even more important issue of intellectual property theft.

"The U.S. is acting swiftly on Intellectual Property theft. We cannot allow this to happen as it has for many years!" Trump tweeted.

Trump asked China to cut the trade deficit by one billion dollars, but retired PACOM commander Adm. Dennis Blair and retired US Army Gen. Keith Alexander wrote in the New York Times that Chinese intellectual property theft costs the US $600 billion a year, making it "the greatest transfer of wealth in history."

Steel is small potatoes

Thomson Reuters

A worker operates a furnace at a steel plant in Hefei

While China has cautioned against Trump's announced aluminum and steel tariffs, and warned that it could result in a trade war which would harm the US above all, the tariffs on metals won't really hurt Chinese businesses as China exports just 1.1% of its steel to the US.

Former Ambassador Jeffrey Bader, a former State Department expert on China with 40 years experience on the subject, said that "China's already under something like 150 anti-dumping and countervailing duty rulings affecting much of the steel industry," on a National Committee on US-China Relations call.

And while the US does make steel, in recent decades the US has created immeasurably more wealth from innovations that hinge on intellectual property being respected.

"This is the PSATs compared to the SATs coming up," Bader said of the tariffs, adding that confronting Chinese intellectual property theft was "the big game."

IP theft is not straightforward to prove, but a recent example includes the FBI alleging in 2014 that Chinese hackers had stolen sensitive intelligence on 32 military projects, including the new F-35 stealth fighter jet.

But according to Bader, the US may have already squandered its shot at the "big game."

The "big game" is coming, but Trump may have already blown it

Carlos Barria/Reuters

"It would be better to try to maintain some semblance of international solidarity with the Japanese and the EU and others," said Bader. Instead, the US appears ready to go ahead with tariffs and protectionist practices that already have key US allies and partners going to the WTO and threatening trade wars.

Meanwhile, most countries would benefit from stronger protections against Chinese intellectual property theft. But instead of galvanizing global support for a crackdown on this costly sort of theft, Trump appears to have divided the world by rolling out the tariffs first.

Privately, US industry figures have long reported Chinese nationals photographing competitive technology. US businessmen in operating in China have been known to abandon their phones and electronic devices and take a walk while discussing important business decisions.

A US Trade Representative report cited China engaging in "trade secret theft, rampant online piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe."

"Having reversed the sequence," by imposing tariffs first, "it's hard to see how there will be much international support," for the US's coming campaign against Chinese intellectual property theft, said Bader.