Opportunity rises from trade dispute

How will it end? That’s the question hanging over the trade war being waged by the world’s two largest economies, the US and China. It’s easy to get lost in the tit-for-tat tariffs and hardknuckle penalties being used to gain an advantage. President Xi Jinping has suggested China will continue on its government-driven path to be a technological superpower by 2025 despite US actions. President Donald Trump keeps repeating he will end China’s illegal use of American ingenuity, conducted through theft, forced technology transfers and mandatory joint ventures.

The most likely outcome will be a negotiated truce. Yet beneath the posturing the trade dispute has forced each side to look at its prime weak spot. For each that is a perceived concern about an ability to invent new ideas that drive new services and products in a competitive global market. The final compromises to end this “trade war” may depend on how much each country changes its view of itself as able to invent and create new markets.

For the US, a National Science Foundation report warns that the country’s global share of science and technology activities is declining. In China, one big concern is not more government intervention but perhaps having less of it. Chen QuQing, an economist working for the Communist Party, says that only 2% of patents that came out of Chinese universities have been transferred or licensed. While China spends heavily on research, “a lot of research has failed to produce useful or marketable technologies”.

China’s most creative private companies are demanding better legal protection of their ideas in the domestic market. That shift in thinking is forcing Xi to speed up reforms of the patent system. For the US, such reforms must also apply to foreign firms that want to operate in the Chinese economy.

If each side can recognise a common interest in fostering innovation, no matter where it happens, the “trade war” could end sooner rather than later. Boston, April 10