A creative solution to the US-China trade dispute

As the world’s two largest economies slap new tariffs on each other, they also are forced to look at their common interest in nurturing innovation. That may help drive both to a truce.

AP Photo
67 of 900China Trade Shoppers in Beijing exit a storefront advertising American apparel April 10. President Xi Jinping promised to cut auto import taxes, open China's markets further and improve conditions for foreign companies in a speech Tuesday that called for international cooperation against a backdrop of a spiraling dispute with Washington over trade and technology.

How will it end?

That’s the question hanging over the so-called trade war now being waged by the world’s two largest economies, the United States and China.

It’s easy to get lost in the tit-for-tat tariffs and other hard-knuckle penalties being used by each side to gain an advantage. In an April 10 speech, President Xi Jinping suggested China will continue on its government-driven path to be a technological superpower by 2025 despite US actions. And President 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 current posturing, the trade dispute has also 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 report by the National Science Foundation in January warned that the country’s global share of science and technology activities is declining. The report recommends a number of ways for government, academia, and business to reboot the nation’s creative juices, such as increased federal spending on basic research.

In China, one big concern is not more government intervention but perhaps having less of it.

In an article last month, Chen QuQing, an economist working for the Communist Party, wrote that only 2 percent of patents that came out of Chinese universities have been transferred or licensed. “The country’s overall capacity for innovation falls short of the standards of other science and technology superpowers,” he states. While China spends heavily on research, “a lot of research has failed to produce useful or marketable technologies.”

The main reasons are a poor capability for original innovation, a lack of high-quality talent, and a low rate of applied uses for basic research. China’s economy and its scientific work “remain two highly disjointed fields,” he wrote.

Who should drive innovation? he asks. The answer is market entities, Mr. Chen concludes.

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

If each side can only recognize a common interest in fostering innovation – no matter where it happens – the “trade war” could end sooner rather than later.

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