Intellectual Property to Take Center Stage as Trump and Xi Meet

WASHINGTON — When President Donald Trump and President Xi Jinping of China sit down to talk trade this week at the Group of 20 summit, their negotiations are likely to be framed by a highly charged topic: the White House’s insistence that China routinely steals American technology and intellectual property.

The Trump administration has repeatedly levied accusations of theft at China, invoking a term that offends the Chinese. Trump regularly says that China has “ripped off” the United States. Last month, Vice President Mike Pence said China’s security agencies had “masterminded the wholesale theft of American technology,” and this week, Larry Kudlow, Trump’s top economic adviser, said in a G-20 preview that “issues of intellectual property theft must be solved.”

The language employed by the Trump administration sometimes lumps together distinct but related issues, such as the trade deficit the United States runs with China, technology transfer deals negotiated by American companies and espionage intended to advance China’s economic rise.

But it reflects a deep, substantive rift, and the ability of the two countries to deal with it could be the key to whether a trade deal gets done in Buenos Aires, Argentina. Trump has already imposed tariffs on more than $200 billion of Chinese goods, largely in response to their approach to appropriating technology, and the rate on those levies could jump to 25 percent next year from the current rate of 10 percent.

While analysts estimate that the United States loses anywhere from $30 billion to $500 billion a year in pilfered intellectual property, many trade experts caution that the situation is much more nuanced than what White House officials portray.

One of the biggest complaints from the Trump administration is that China forces American companies to enter into joint ventures with Chinese companies if they want to do business in China. As a result of these required mergers, the administration argues, valuable technology and intellectual property is transferred to Chinese state-owned enterprises and essentially is handed over to the government.

The Trump administration has also been frustrated by Chinese laws requiring that foreign-owned research facilities be built in China, making it harder to keep trade secrets. To comply with Chinese laws, companies like Apple and Amazon have set up ventures with local partners to handle data in China — a requirement that Chinese officials say is driven by security and privacy concerns. Chinese officials have also pressured foreign companies to give them access to sensitive technology as part of a review process to make sure those products are safe for Chinese consumers.

The United States has also complained about a compulsory certification program that requires foreign products to undergo rigorous testing. This can expose source codes and algorithms for products such as medical devices and machinery that can make them more easily replicated.

American companies are often shy about complaining about these practices, for fear of being banned from China, but the China hawks in the Trump administration has made them a priority for an agreement that would offer the Chinese relief from tariffs.

Then there is actual espionage. A report last summer by the White House’s Office of Trade and Manufacturing Policy, led by Peter Navarro, accused China of “economic aggression” and laid out a detailed case explaining the costs of China’s cyberespionage campaigns.

The analysis pointed to China’s cyberintrusions of American companies, its evasion of American export-control laws and its extensive efforts to reverse-engineer and counterfeit American products. It pointed to a study that found the annual cost to the U.S. economy of pirated software and counterfeit goods could be as high as $600 billion.

Beyond tariffs, the United States has used more proactive means to protect intellectual property.

In October, the United States blocked a Chinese state-owned technology company — Fujian Jinhua Integrated Circuit, a manufacturer of semiconductors — from buying American components because it posed a national security threat. Then, three days later, the Justice Department charged the company, its Taiwanese partner and three individuals Thursday with stealing trade secrets from an American technology company.

The Trump administration is increasingly invoking national security to block Chinese deals, most recently expanding the powers of the Committee on Foreign Investment in the United States, to more rigorously scrutinize a broader range of transactions.

These accusations of “theft” have offended the Chinese, who view them as a suggestion that the country lacks the ability to innovate. Cui Tiankai, China’s ambassador to the United States, has argued that American companies are voluntarily merging with Chinese businesses because nobody is forcing them to expand their operations into China.

“I think all these accusations about how China has developed are groundless and not fair to the Chinese people,” Cui told Fox News last month. “It would be hard to imagine that one-fifth of the global population could develop and prosper, not by relying mainly on their own efforts, but by stealing or forcing some transfer of technology from others.”

Some China experts such as Derek Scissors, the American Enterprise Institute scholar who advised the Trump administration on its report on China’s intellectual property practices last year, contend that China has gone so far to keep out foreign competition that it has stunted its ability to innovate.

“They’re not relying on innovation,” Scissors said. “Structurally, China is set up to coerce more as time goes on.”

China experts suggest that Xi is unlikely to admit that China has stolen anything, but that he will point to areas where his government has been working to comply with requests from the United States.

China has been easing its joint venture requirements for some sectors. It is also putting in place a new intellectual property appeals court system, which some analysts have said is, in part, an effort to assuage concerns from foreign investors that trade secrets are not safe in China.

Craig Allen, the president of the US-China Business Council, said that the Chinese will be reluctant to make rapid or drastic changes to accommodate Trump’s demands. They often note that the United States borrowed technological expertise from Britain in its infancy and that technology transfer is a natural part of a globalized economy.

Allen suggested that Trump must press Xi on specific changes to Chinese law that he wants that would help American businesses, but that name-calling will be counterproductive.

“When it becomes ideological and is phrased as the starting bid is ‘you guys are thieves and you need to change,’ then the discussion doesn’t go very far,” Allen said.