The Great Stonewall of China

The battle between the U.S. and China over intellectual property rights will likely never end. The Chinese built a Great Wall, and it should be no surprise they know how to stonewall.

The U.S. government has been lodging complaints with the World Trade Organization over a variety of trade issues but nothing ever seems to come of it. Maybe it is time to play hardball. Or at least rattle a few cages.

Morgan Stanley’s Stephen Roach is full of big ideas. Like all strategists/economists, he is paid to pontificate, which is what two-handed economists do best.

He also travels extensively, and despite the jet-lag, noticed how the Chinese practice selective enforcement of Intellectual Property Rights.

China has long complained how difficult it is to enforce IPR protection in a nation where factories and distribution facilities can spring up overnight. Try finding official Beijing 2008 souvenirs in China’s fabled open-air markets that contain knock-offs of a wide range of Western products. Let me assure you - you can’t. When China puts itself to the enforcement task ¨C even in the IPR area ¨C it can accomplish almost anything.

Well you can’t buy counterfeit Beijing Olympic tchotchkes in China, just pirated copies of Microsoft’s Windows.

But with the trade imbalance now at a record $232 billion the rhetoric is ratcheting up. And Roach is in the mix…

On the surface, the Bush Administration has very little to show for its efforts. The bilateral trade deficit with China soared to a record -$232 billion in 2006, and by the end of last year accounted for fully 34% of America’s overall multilateral imbalance. In the face of these numbers ¨C and in the context of politicians who have connected trade deficits with pressures on the American middle class ¨C patience with respect to talk and negotiations has worn thin in the White House, and the approach is now becoming more action-oriented.

Slapping the Chinese around might feel good, but is unlikely to accomplish much. Until we learn how to save, they will likely fund our capital inflows. But they are convenient scapegoats.

Check out more of Stephen Roach’s interview with People’s Daily Online
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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