Intellectual Property Rights Benefit All, Not Just the Rich

July 18, 2019  

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Truthout recently published an op-ed claiming that President Trump’s focus on intellectual property rights in the trade dispute with China favored the rich, not American workers and indicated that it would be better to focus on currency valuation issues instead. Intellectual property rights are indeed an issue for the Trump administration and China’s rampant theft of American intellectual property has long been a grievance for American firms.

The op-ed claims that, if China were to respect intellectual property, more American firms would offshore their operations to China because they don’t have to worry about IP theft. This would endanger American jobs. This argument falters on basic accounting grounds. Double-entry accounting of the international balance of payments requires that every transaction involve a debit and a credit. The U.S. trade deficit – an excess of imports over exports – is matched with a capital surplus, or money flowing into the United States to buy assets. These assets can be capital investment, equities, or debt instruments. If more companies suddenly offshore their operations to China, the U.S. trade deficit* must decline. The U.S. will import fewer goods and export more as a result. This is nothing more than a tautology from double-entry international accounting. This is good for American workers collectively.

Example US Patent

The op-ed claims that, instead China will pay more for U.S. intellectual property, reducing the amount they have to spend on U.S. goods. This claim also falters because the U.S. trade deficit is not a bilateral matter; it is a global matter. If China buys less from the United States, there is room for other countries to step in and buy more. Moreover, if China respects American intellectual property, there should be a greater incentive to produce intellectual property. Skilled workers who produce it will be in higher demand, creating more jobs to receive the money that China now has to pay for U.S. intellectual property.

The last point of the op-ed is that greater respect for intellectual property rewards the entrepreneurs more than workers, citing Bill Gates as an example. Gates earned his fortune because of intellectual property rights and successful entrepreneurial risk-taking. If he couldn’t have earned his fortune, his employees would not have earned their livelihoods. It is true that markets reward successful entrepreneurs more than workers, but that is not because of intellectual property; it happens in other sectors too.

Protecting intellectual property rights is good for American firms and good for American workers. Yes, any policy creates both winners and losers, but the op-ed in Truthout highlights problems that are really benefits or occur alongside benefits. The Trump administration’s focus on intellectual property will encourage innovation, provide more jobs, and may even rein in the artificially large trade deficit.*Strictly speaking, the current account deficit, which includes more than just the trade deficit, but the broad argument is the same.