How Stupid Can America Be? Pretty damn stupid according to a new report by the United States International Trade Commission. In 2009, the United States lost $48 billion dollars and 923,000 jobs due to brazen theft by China. Yet, companies routinely think the great answer is to manufacture in China, due to lower costs. How can getting your product and design ripped off, with a knock-off, at least 30% cheaper than your own product appearing on store shelves, help a company increase their profit margins?
Map Scaled to Global Shipping Container Traffic Origin, Source: WorldMapper
Such is the stupidity of American business today. The extent of intellectual property theft in China is overwhelming. If China enforced intellectual property rights to the level of the United States, we could gain 2.1 million jobs. That's how widespread and brazen intellectual property theft in China is. The USITC estimates what would happen to the U.S. economy if just intellectual property rights were enforced in China:
- $21.4 billion increase in U.S. exports of goods and services
- $87.8 billion increase in sales to U.S. majority-owned affiliates in China
- Potential 2.1 million increase in net U.S. employment under conditions of prolonged and high unemployment
- Some reallocations within the U.S. workforce towards more IP-intensive services sector jobs
As U.S. and other manufacturers moved their manufacturing operations abroad to Asia and other regions, opportunities for counterfeiting increased from the standpoint of both the production process and the import supply chain.
In other words, those companies who funneled billions in new investment dollars to China, moved their manufacturing and business there, are much more likely to be ripped off. Others heavily targeted are those manufacturers with high value trademarks, such as Prada and Nike.
Below is a graph showing firms that reported intellectual property infringement were 58.1% of the 2009 China sales by U.S. intellectual property intensive businesses. So, in other words, companies targeted are large, multinationals, doing business in China and outsourcing.
Which industry sectors are getting rip-offed the most? Why advanced technology, of course. Generally U.S. firms reporting IPR (intellectual property rights) infringement were heavily engaged in China, established. Below are the percentage breakdowns of industry sectors reporting intellectual property theft:
- 36.9% - high-tech and heavy manufacturing
- 25.2% - information and other services
- 22.2% - consumer goods manufacturing
- 13.4% - chemical manufacturing
- 2.2% - transportation manufacturing
Technical innovation is responsible for 75% of the U.S. economic growth since the 1940's. Now one must assume this means the resulting production spawned is located in the U.S. from that U.S. Department of Commerce statistic. Just how important IPR is, to the U.S. economy, in spite of this grand theft
auto copyrights & patents game from China, the United States still ran a $64.6 billion trade surplus for royalties and licensing fees in 2009.
Yet, look at the response by U.S. corporations to combat theft. Pulling out of China? No. Hiring Americans who are loyal to the nation? No. Lowering their own prices? Yes. U.S. corporations are literally are competing against their own designs and products. There is literally no investment, planning, research and development to manufacture a ripoff clone.
U.S. firms also reported lower revenues because they lowered their prices in the China market or reduced the number of products they sold in that market, thereby also possibly losing market share in China.
This is another problem with the great mythical 1.3 billion person consumer market, one is going to have to lower their prices in order to compete in those markets, a point not often analyzed.
The type of intellectual property stolen in China is copyrights. Software is covered under copyright most often. The footnotes state 79% of all software installed in China in 2009 was ripped off. This appears to be from a user view as well as stealing firmware and software for product clones.
Beyond this report, China has a so called indigenous innovation policy. This amounts to demanding intellectual property be developed by Chinese engineers and scientists and America can....go do something to itself. Not only is China ripping off America, they are demanding that intellectual property recognized in China be developed....by the Chinese.
How buy American and hire America is that? Unfortunately the wrong country is enacting it.
There is quite a bit of testimony in the report. What is astounding is the number of so called experts in pure denial over the loss of intellectual property and corresponding revenues in China. One literally tried to claim it's all good because somehow enabling theft fosters Democracy. Good God.