TONY BOYD. ‘Trump’s evidence-free trade war’, Australian Financial Review, 22 Dec 2018, p.56

Dec 27, 2018

Rarely has there been a more comprehensive dissection and damnation of a government policy founded on misinformation than economist Stephen Roach’s analysis of President Donald Trump’s trade war with China. Roach, who traded his job as chairman of Morgan Stanley Asia for faculty membership at Yale University in 2012, was masterful in his use of humour, satire, irony and hard facts to tear apart the arguments put by Trump and US Trade Representative Robert Lighthizer to justify US protectionism. 

In a keynote speech to about 1000 people attending Morgan Stanley’s 17th annual Asia Pacific Summit in Singapore in late November, Roach questioned the “facts” used to support arguments that China is stealing intellectual property and using joint ventures to force the transfer of US technology to China. He said there were egregious flaws in the two reports used as “evidence” to support claims that China had stolen trade secrets: the IP Commission Report chaired by Dennis Blair and Jon Huntsman and the Economic Impact of Trade Secret Theft by the think tank, Centre for Responsible Enterprise Trade, and PwC.

Roach said it was worrying that the estimate of trade secrets theft included a range of between $US 180 billion and $US 540 billion, a statistical range even Wall Street would not tolerate. “They have no evidence of how much is stolen”, he said.

“They have developed these models that allow them to use proxies to guess how much has been stolen by looking at things like narcotics trafficking, software piracy, occupational fraud and a corruption index.

“So they have modelled through some statistical chicanery what these proxies might mean for trade secret theft. Then they have a special section which says ‘we know most of this is China’ but again there is no evidence for that.

“The only evidence they have to be able to pin the rap on China is numbers from the US Custom and Border Control, who seized $US 1.35 billion of counterfeit and pirated goods in 2015. They were able to attribute about 50 per cent of that to the PRC and another 35 per cent to Hong Kong – so about 85 per cent to greater China.”

In other words, the US has taken about 87 per cent of $US 1.3 billion in counterfeit and pirated goods and extrapolated that to claim China is stealing IP of $225 billion to $600 billion, Roach said.

“It is possible China is doing that but we don’t have the evidence – that’s the point”, he said. Also, he said there is no hard evidence to support the claim that China uses joint ventures to force the transfer of US technology to China. These allegations were contained in a 183-page report by the USTR called “Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property and Innovation under Section 301 of the Trade Act 1974”. “So you read the report and they say, maybe buried in some obscure footnote, we don’t really have any evidence it was forced,” Roach said.

Later in an interview with Chanticleer, Roach said he was beginning to despair of public policy making in the US. “Forget the fact that we have a President who’s untruthful literally multiple times every day”, he said. “But when you have a policy that works its way through the congressional process, presumably checked out at all levels by the so-called experts both in the private sector and in the public sector, and yet you can still have policies framed in a way that has total disregard for scientific factual support – it’s very disturbing.

“It is not just in the trade area. The Trump administration last week issues a devastating report on climate change and the President says ‘I don’t believe it’ and he says ‘I’m an intelligent person’.”

Roach says the era when intelligent and successful business people would join an administration to give back to society is over, for the time being. “There are a number of people who would not join this administration under any circumstances.”

Roach, nevertheless, remains optimistic about the US economy. But he said the country needed to stop blaming others for its problems. “We’re a dynamic economy, we create good companies and we’re good at innovation”, he said. “But what bugs me or bothers me the most is our knack to blame others for self-inflicted problems. We have trade deficits, as I showed in the presentation, with 102 countries. Can we blame all 102 countries for that or is there some bigger set of issues at work? Trade deficits and multilateral imbalances are an outgrowth of our own inability to save for the future.”

Tony Boyd ……………..

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