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Intellectual property and the trade deficit

Summary:
"The IP Commission estimates that between 0 billion and 0 billion a year of intellectual property is stolen from the U.S." I found this interesting tidbit in The Atlantic interview of Kevin Hassett, ex CEA chair. (HT Marginal Revolution)Well, suppose China were to pay up, and pay the 0 to 0 billion a year in royalty ...

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"The IP Commission estimates that between $200 billion and $500 billion a year of intellectual property is stolen from the U.S." I found this interesting tidbit in The Atlantic interview of Kevin Hassett, ex CEA chair. (HT Marginal Revolution)

Well, suppose China were to pay up, and pay the $200 to $500 billion a year in royalty payments. Where would it get the money from? Hmm. It would have to sell us an additional $200 to $500 billion worth of exports, that's how.  The trade deficit would have to increase.

China could sell us $200 to $500 billion a year of assets instead. Maybe we would like to hold lots of Chinese stocks, bonds, or government bonds rather than buy more boatloads of goods? But if we bought worthwhile Chinese assets, those are only claims on future Chinese profits. And the only use we have for lots and lots of Chinese currency profits is to... buy things in China and send them here. If we bought worthless assets, bonds that default, or stocks whose legal rights evaporate,  then, well, we're back where we started.

Or maybe we don't want to license IP, we just think US owned firms operating in China could make an additional $200 to $500 billion per year profits operating in China without Chinese competition. And what do US owners want to do with $200 to $500 billion of Chinese profits per year? Go on a shopping trip, and put it on boats, sooner or later.

One way or another, the only way that China can properly pay for intellectual property, is to put more stuff on boats and send it to us. Paying for intellectual property must increase the trade deficit.

Being a free trader, I think this is great. The point of trade is to get the imports. The point of intellectual property is to force China to send us boatloads of stuff.

Somehow I don't think the Administration sees it that way. But you can't escape addition.  

John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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