Trump Irritated by Possible Theft of US Innovation in China

trump caracature at the whitehouse

For every Uber there’s a Didi.

A Tujia for every Airbnb.

And an Alibaba up against every Amazon.

Yes, China has been famous — or should I say infamous — for its strategy of imitation. Especially of innovative foreign companies.

There’s practically a Chinese version of every well-known growth story.

As a game plan, it’s working for them.

For a brief moment on Tuesday, Alibaba overtook Amazon to become the world’s biggest e-commerce company.Im

And yesterday, Airbnb clone Tujia raised US$300 million to fund a rapid expansion plan. They’re looking to capitalise on a surge of Chinese families taking overseas holidays.

Imitation is nothing new in China.

It’s ingrained in the culture.

When I was in China five years ago, I noticed the glazed rooftop tiles around smaller city landmarks were the same as those found in Beijing’s Forbidden City.

The distinctive tiles were direct clones.

As I travelled around, there was a lot less regional variation than you get in other parts of the world.

Perhaps that’s just due to long term dynastic traditions?

Either way, seven decades of communist ideology — in theory at least — doesn’t create melting pots of independent thought.

Until recently…

At the world-famous Consumer Electronics Show (CES) in 2017, a slew of Chinese companies exhibited.

700 of the 1,575 Chinese companies were from the Shenzhen area. China’s own ‘Silicon Valley’.

A fresh focus on innovation is increasingly high on the ruling party’s agenda.

But it might be too late to ease tensions with the US.

The Trump administration is currently probing China’s intellectual property (IP) practices.

It’s adding more powder to the already volatile political mix.

It could even be the spark that sets off a trade war.

The US argues that Beijing forces US companies into giving away IP as the price for doing business in China. They siphon off the IP, and give it to state-backed companies like Huawei.

In the most obvious cases, Chinese clones of American companies then spring up.

Stealing business ideas is one thing, but it’s the deeper technology insights the US wants to protect.

Especially in the fields of artificial intelligence, big data and advanced technologies. 

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Daniel Patrick McGahn, chief executive officer of American Superconductor Corp. wants China to understand that American and Chinese companies ‘all should be subject to the same rules.

A level playing field.

China, for its part, is playing dumb.

We are quite confused and greatly concerned about the investigation,’ said Chen Zhou of the China Chamber of International Commerce.

It’s yet another front in a trade war simmering beneath the surface. Tensions will remain as each seeks to advance their own interests.

Everything from labelling China a currency manipulator to increasing import taxes are up for review under Trump.

No one wins in a trade war

So far, it’s mostly been words and accusations.

Not actions.

Which is good.

The two biggest economies going toe to toe would be bad for everyone.

Trade wars aren’t the sort of battle that you win. As the economist Adam Smith showed three centuries ago, trade is a win-win scenario.

You produce what you are best at, I produce what I am best at, and there ends up being more for everyone.

As China starts to grow its economy and wealth, it will need to start accepting a more level playing field.

Research costs are huge burdens on technology companies. There’s only so much ‘free riding’ they will take.

No doubt China understands this.

But it’s in their own interest to negotiate every inch. And in the meantime grow China’s wealth, its companies and its technological know-how.

How Trump reacts to this is the big unknown. As the great deal maker in chief, he’s unlikely to fall for such stalling tactics.

He would prefer a straightforward deal.

Perhaps that will come by way of a North Korean solution? Perhaps that’s been China’s bargaining chip all along?

Or perhaps Trump has other cards left to play?

I don’t know.

I’m not a master of the art of the deal.

But I do hope the two superpowers find a way through this impasse. Because it will be a win for Australia.

In fact, our future economic hopes hinge on it.

Good investing,

Ryan Dinse,
Editor, Money Morning

Ryan Dinse

Ryan Dinse

Ryan Dinse is an editor at Money Morning. With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

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