Trump's move on China counterfeiting, piracy aimed at protecting U.S. jobs

President Trump is prepping to tackle a nearly $500 billion problem. 

While the path of his quest is far from certain, Trump's directive to his trade officials to start preparing for an investigation on China's intellectual property policies was welcomed by an industry that has struggled with counterfeiting and piracy for years. 

The move, confirmed by a person familiar with the plans, could result in heightened trade conflict with China that may trigger U.S.-imposed penalties leading to restrictions in Chinese imports and potentially higher prices for American consumers. The person spoke on background because the deliberations are preliminary and a formal decision to start the investigation isn't ready to be announced. 

But while consumer prices could rise, the administration's efforts, if successful, would theoretically support U.S. workers. Industries including technology and manufacturing that rely heavily on intellectual property support 45.5 million American jobs, or about 30% of all employment in the U.S., according to government estimates.

"We welcome this increased U.S. government attention," says Carl Schonander, senior director for international public policy at the Software & Information Industry Association.

U.S. companies' struggles to safeguard intellectual property in China are well-chronicled. Theft of trade secrets, counterfeit sales and software piracy cost the U.S. economy as much as $600 billion a year, says data from the Commission on the Theft of American Intellectual Property. And China is estimated to be responsible for 80% of the problem.  Counterfeits are estimated to account for over 12% of Chinese exports, according to the Office of the U.S. Trade Representative. 

Trump's trade officials also have been engaged in on-and-off talks with their Chinese counterparts to hammer out deals in specific industries. But these talks "haven't borne the fruit they were anticipating," says Stephen Ezell, director of global innovation policy at the Information Technology and Innovation Foundation. "So they are making it more publicly known."   

Getting China to more aggressively address rampant intellectual property theft in the country would foster its trade relationship with the United States, encourage U.S. companies to invest in the country and preserve and create more jobs for Americans, industry officials say. 

There are geopolitical implications as well. China is reluctant to link trade with the issue of North Korea's nuclearization and China's potential role in easing the tension. And some analysts believe Trump's squeeze of China on trade issues could be a lever in their broader talks about North Korea. 

China also has been making moves that have troubled foreign companies operating there. It has designated certain advanced industries -- such as alternative energy, military technology, electric cars, advanced computing -- that it envisions leading innovations worldwide. And the government has heightened local rules that could lead to spilling of more technology secrets in these industries, including pressure on foreign companies to form joint ventures with local partners and share software codes.

Citing cybersecurity concerns, China enacted a new law this year that would require foreign companies to store their local data in servers in China and restrict cross-border data flow. In May, a group of more than 50 organizations, representing technology and manufacturing companies and general business advocates, signed a letter to the Chinese government to delay the rule. 

"Many companies are twisted into a pretzel by the autocratic government that has millions of levers to pull," says Rich Ellings, a trade expert and president of the National Bureau of Asian Research. These issues "have reached a critical point."  

It's still unclear how Trump plans to press China to tighten intellectual property laws. But the administration could turn to a provision of the Trade Act of 1974 that was designed to allow the president to pose sanctions on countries that engage in unfair trade practices. Trump's trade officials could also turn to the World Trade Organization to settle disputes, though the administration's skepticism about the international organization's ability to move quickly is hardly a secret. 

If sanctions or penalties are imposed, China could respond with retaliatory actions. "There will be sacrifices," Ellings said. "Yes, the Chinese will retaliate, but letting the situation go infinitely longer is just devastating."