The United States set a historic precedent last month by charging five members of the Chinese military with stealing intellectual property rights from U.S. companies. On the surface, it sounds like the United States is starting to crack down on the Chinese for stealing trade secrets. However, the charges are unlikely to go anywhere, because the Chinese government is never going to hand these officers over to the United States. Rather than grandstanding, the Obama Administration and Congress should be worried about the millions of jobs that could be lost if the Chinese continue to steal trade secrets from U.S. companies.
How Chinese IP Theft Threatens U.S. Jobs
One study from the Economic Policy Institute found that the United States has lost 2.7 million jobs since China joined the World Trade Organization in 2001. The EPI clearly states that China is costing the United States nearly $40 billion in lost wages every year. It is difficult to determine exactly how many of those jobs were lost due to the theft of trade secrets, but many experts that reviewed the EPI report feel that China’s continued copyright violations are costing us hundreds of thousands of jobs. One survey from the U.S. International Trade Commission predicts that the U.S. would save about 923,000 jobs if China stopped stealing U.S. trade secrets. The EPI also used statistical modeling to show that the United States would save even more jobs (approximately 2.1 million) if China stopped pirating U.S. movies and software.
The EPI study shows that Chinese copyright infringement is clearly having a very negative impact on employment in the United States. The research has been corroborated by a number of companies that have victimized by Chinese IP theft. Daniel McGahn, the CEO of American Semiconductor, said that a major Chinese energy firm bribed one of his employees to spy on the company.
The employee was indicted last year, along with a couple executives from a Denmark based firm that conspired with the Chinese firm. However, the indictments haven’t reversed the damage that was done to the company. American Semiconductor lost millions from the theft. It was forced to terminate 450 of its employees, which was about half of its workforce.
How Can Chinese IP Theft Be Addressed?
Addressing the violation of intellectual property theft is going to prove to be difficult. The U.S. could try to block trade with China in the future. Recent accusations made both Chinese and U.S. leaders show that the government may be posed to do so in the future. However, engaging in a trade war would probably not deter China from stealing U.S. secrets and continuing to sell them to the rest of the world.
The U.S. will need to consider a number of new solutions to address IP theft. A recent report from the IP Commission stated that addressing cybertheft will be important, but it will need to focus on other solutions as well. The report showed that IP theft is significant, but most trade secrets are stolen the old fashioned way. Chinese officials will bribe U.S. employees or steal secrets onsite with companies they are working with. Creating new policies to address these issues may prove easier.
The government may need to consider stricter penalties for employees that are complicit in the theft and encourage companies to implement much stricter protocols to stop foreign companies from stealing secrets onsite.
Astute companies would also stop working with Chinese firms in the first place. Would you go into business with a group that showed a pattern of stealing trade secrets? I sure as hell wouldn’t, but the message is finally starting to sink in for many companies.
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