Trump will soon receive a report under Section 301 of the Trade Act of 1974. That report has been almost a year in preparation and will reveal that China has stolen over $1 trillion in U.S. intellectual property.
Section 301 of the Trade Act of 1974 is the “nuclear option” when it comes to trade wars.
I don’t want to get too deeply in the weeds here, but Section 301 gives the president broad authority to impose sanctions and penalties. The president will have a completely free hand to impose billions of dollars of damages if not more on China.
Trump could receive this report within days or weeks. Regardless, it is coming soon.
Once the president receives it, the law gives him 90 days to react. But he will likely act within days or weeks upon receiving it.
Importantly, Trump does not require Congressional approval to act. Again, the law gives the president enormous flexibility. So he doesn’t need Congressional backing as he did for, say, the tax cuts.
Initial reports indicated that these penalties will be about $60 billion. In fact, Trump used that figure in today’s press conference on tariffs. But that’s just for starters.
Trump will wait to see if China is willing to make concessions in other areas. If not, he can easily double or triple that $60 billion figure.
The penalties Trump seeks to impose are not limited to specific sectors but may apply across a wide range of goods and services from China that benefitted in any way from the theft of intellectual property (IP).
IP is a very tricky subject with a lot of gray area.
Trade restrictions on steel, for example, are much easier to implement. Steel is tangible. You can weigh it, track it, etc.
Intellectual property, on the other hand, is much more vague, much more amorphous. It exists inside human brains, or on the internet or a computer thumb drive. It can be everywhere at once in a sense.
So it’s much more difficult to identify, quantify, and throw tariffs on than traded products like steel, autos, solar panels or washing machines. Yet intellectual property is more important than ever.
We live in a world of technology, a world of the internet, of smart devices, and even cryptocurrencies for that matter. These are all forms of intellectual property.
Now, China has been stealing U.S. intellectual property for decades in various ways. Sometimes it happens when a Chinese scientist comes to the United States and takes what he learns back to China.
But a lot of the theft has been done through malicious hacking of U.S. technology companies. These could be big defense contractors like Lockheed Martin or Northrop Grumman. But they could also be small firms with one great innovation or idea. These smaller firms may actually be more vulnerable because they don’t have the defenses against hacking or cyber warfare that the big guys do.
With this stolen intellectual property, China has been able to build up companies like Huawei, a large technology and telecommunications firm. And its defense industry has made enormous strides because of stolen intellectual property.
Because intellectual property is so amorphous, the president could look at a wide variety of Chinese industries and say:
“You know those electronic products you’re assembling, like smart phones? They wouldn’t be so smart if you hadn’t stolen some of our intellectual properties. So we’re going to throw a tariff on them.”
These penalties will have a much broader and deeper impact than the steel and aluminum tariffs, or those on washing machines or solar panels.
- Source, Jim Rickards via the Daily Reckoning
