American businesses are forced into a “devil’s bargain” when doing business with China, White House trade official Peter Navarro wrote in an op-ed Monday.
China forces U.S. companies to adopt a variety of arrangements designed to transfer technology to Chinese firms. These include rules that force U.S. companies to partner with Chinese companies, conduct R&D in China, and license technology at below market prices, Navarro wrote.
Many U.S. companies have raised concerns about losing IP to an array of foreign countries, but their concerns about China’s pervasive and strategic behavior are the most pressing. As part of a far-ranging strategy, China has adopted an industrial policy specifically designed to force the transfer of technology from American businesses to Chinese firms in order to gain an unfair advantage and build a dominant global presence. China’s joint venture requirement for certain American companies is the poster child for its strategy. Companies that want to produce in China and sell into the Chinese market must enter into joint ventures that result in their technology being turned over to their Chinese partners. The United States, on the other hand, imposes no such reciprocal requirements.
Increasingly, China is also forcing U.S. companies to localize their research and development — the seed corn of future IP — on Chinese soil. Further, China is coercing American firms into providing its state-owned enterprises with below-market acquisition and licensing terms while asserting ownership over any improvements made to the licensed technology.
Despite repeated attempts by the U.S. government to negotiate fair and reciprocal rules regarding IP protections, China keeps tightening the screws. Last November, it passed a new cybersecurity law, despite deep concerns from the American business community that it may give China legal authority to require data localization, restrict cross-border data flows and impose national security reviews. In addition to the obvious problems with these actions, they also may create a backdoor method to accessing United States data, encryption and source code under the guise of Chinese national security. More broadly, China’s “secure and controllable” standards discourage Chinese firms from buying United States products and technologies, impeding United States exports.
These forms of state-sponsored forced technology transfer are truly a devil’s bargain.
President Donald Trump is expected to launch of major probe Monday into China’s theft of U.S. intellectual property.
“The Trump administration will not turn a blind eye to this assault on America’s economic future and national security innovation base. With his action today, President Trump is signaling to the world that protecting American IP and technologies is one of his highest national priorities,” Navarro wrote.