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Free Technology Transfer is Not the Way to Go

Noah Smith wrote an opinion piece this week at The Atlantic entitled “The End of Global Warming: How to Save the Earth in 2 Easy Steps” that starts by accurately laying out some hard truths for climate policy advocates, but then wildly veers off course.

The piece begins strongly by highlighting the difficulties of implementing an effective global carbon tax. A key condition carbon pricing must meet for it to be an effective global climate policy is that all countries must implement the policy, not just a select few. If not, industries (and their emissions) will simply move to countries that don’t have similar carbon pricing policies. And as industries and their emissions move around, countries with a carbon price lose economic competitiveness, jobs, and economic growth. It’s easy to foresee a situation where a country that implements a carbon tax must either rescind the tax, make it less stringent, or exempt industry from the tax to reduce economic harm. In all cases, the carbon tax fails to drastically reduce emissions as much as needed, if at all.

Smith also recognizes the importance of government support for clean energy innovation.

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Xin Yu City Center

LDK Solar Debt Repayment a Troubling Escalation of Green Mercantilism

This week, it was reported that struggling Chinese company LDK Solar will have at least part of its debts paid by the city – Xinyu in eastern Jiangxi province – in which it is based. The company is the world’s second largest maker of solar wafers, but has been hit hard by an ongoing solar technology supply glut that is ironically being exacerbated by China. As a result, LDK owed $79.4 million in loan debt to Huarong International Trust Co. at the end of 2011. Yet while Xinyu’s decision to help repay LDK’s loans may be good news for the company, it is very troubling news for opponents of China’s mercantilist policies. ITIF has taken a close look at China’s mercantilist policies in general and its green mercantilism in particular. The country already “employs nearly all types of mercantilist policies to artificially drive down the price of clean energy technologies,” a previous blog post notes: ... Read the rest

THAAD Launcher

China’s Systemic Counterfeiting and IP Theft Undermine U.S. Economic and National Security

On May 21, 2012, the Senate Committee on Armed Services released a disturbing report on the extent to which counterfeit electronic parts had infiltrated the U.S. defense supply chain. The report, which looked at just one part of the defense supply chain from 2009 to 2010, documented 1,800 cases of suspected counterfeit electronic parts being deployed on a wide range of weapons systems, including anti-submarine aircraft and helicopters, cargo planes, and missile defense systems such as the Terminal High-Altitude Missile Defense (THAAD) system. Regarding THAAD—a short- to intermediate-range missile defense system designed to shoot down ballistic missiles (think SCUDs in the Gulf War)—the investigation found that the mission computers that controlled the missiles contained suspected counterfeit memory devices, which if they failed while deployed would have comprised the entire missile defense system, placing the lives of U.S. service members (or even U.S. or foreign citizens) at risk.

The Senate’s report found that the overwhelming majority—at least 70 percent—of the suspected counterfeit parts originated in China. This conclusion was not surprising. While the Senate’s report was limited to assessing counterfeit electronic parts in the defense supply chain, a broader report by

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DOC China Solar Tariff Ruling Will Boost Innovation

The Department of Commerce (DOC) has released a preliminary ruling to impose a 31 percent “anti-dumping” tariff on 62 Chinese solar PV manufacturers (and a 250 percent tariff on all other Chinese solar manufacturers) in addition to the 2.9 to 4.73 percent tariff imposed in March for illegal subsidies. The reaction to the preliminary ruling has been varied, as the tariff would impact the solar supply-chain differently depending on whether you’re a U.S. installer, intermediate components supplier, or final manufacturer.  But one thing is certain: the DOC ruling is a positive step towards boosting solar industry innovation.

From 2000 to 2011, China increased its global solar PV export market share from 2 percent to 54 percent, or a compound annual growth rate of 115 percent. This remarkable export growth, in addition to significant deployment subsidies in the United States, has helped solar PV costs decrease 75 percent in the last 10 years.  But what’s the character of that cost decline?  According to a recent McKinsey study a share of the decline is economies of scale – i.e. greater solar PV production reduces unit costs – which in reality is a

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China and America Flags

What Should America Do About China?

Until the mid-2000s, China actively encouraged foreign direct investment through a vast array of incentives, many of them mercantilist and unfair in nature. While the consequences of China's mercantilist policies might not have always been good for the U.S. economy, and especially for many production workers in traded sectors, U.S. multinational corporations benefited from access to a low-cost production platform. The United States doesn't need to close its borders to be a vibrant competitor. It must, however, require that other nations like China to play by the rules. And Americans in their role as consumers benefited from lower-cost goods. While China occasionally engaged in policies that brought complaints from U.S. industry, by and large the United States was satisfied with the relationship.

In 2006, that began to change. China made the strategic decision to shift to a "China Inc." development model, based on successful Japanese and Korean examples, that focused on helping Chinese firms grow by moving up the value chain and gaining global market share, often at the expense of foreign firms.

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wind turbine workers in china

Fighting Green Mercantilism: Ensuring Cross-Pacific Clean Energy Innovation

Xi Jinping, China’s leader-in-waiting and incumbent vice-president, is being given a grand welcome to the United States this week. The Financial Times notes that “no previous China vice-president has received a 19-gun salute or an Oval Office meeting with the president.” However, while the Obama administration has made a point of confronting Xi on hot-button issues like human rights and North Korea, much more needs to be said on the issue of China’s mercantilist clean energy policies.The fact is that Chinese policies, including dumping solar panels in the market to undercut competitors, domestic-requirement provisions for wind, and a myriad of IP-theft-related issues are not only stifling innovation, but harming nascent U.S. industries. For instance, last October, SolarWorld USA petitioned the Department of Commerce – on behalf of several U.S. solar companies – to determine whether China has been unfairly supporting its solar exporters. The U.S. International Trade Commission (ITC), which the Commerce Department tasked with investigating the complaint, unanimously declared on December 2, 2011 that Chinese solar panel and cell imports are hurting the American solar manufacturing industry and a final decision is still pending on whether punitive tariffs are

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Oops, Never Mind: BCG Gets it Wrong on U.S. Manufacturing and China

A major consulting firm recently released a study that predicted, “within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world.” The study received widespread attention in the media, desperate as we have become for any good news.

Contrast that to another study by a consulting firm that came to the exact opposite conclusion: “We maintain, in contrast, that the cost gap not only is unlikely to close within the next 20 years, but in some cases may actually increase.” So which study should we believe, the one that says don’t worry, the cost gap is closing, or the one that says it’s increasing and even more manufacturing will be decamping America for China?

One way would be to put our faith in the consulting firm that has the better reputation for doing good analysis. The only problem is that both studies, believe it or not, were produced by the same firm: the Boston Consulting Group. Now BCG might say we should cut

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Let’s Get the Trans-Pacific Partnership Right


The Obama Administration is wisely moving forward with a landmark trade agreement, the Trans-Pacific Partnership (TPP). With origins in the Bush Administration, the TPP would increase regional economic integration between the United States and eight other Asia-Pacific nations: Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. The TPP represents a great opportunity for the U.S. to strengthen its trade ties with growing and dynamic markets but only if it truly raises the bar for fair, market-based trade. As spelled out in Gold-Standard or WTO-Lite?: Shaping the Trans-Pacific Partnership, a new report from the Information Technology and Innovation Foundation, as it stands the TPP unfortunately runs the risk of enabling, rather than curbing, a continuation of some of the rampant mercantilist trade practices that have hurt economic growth and invited skepticism of global trade.

In the old days, mercantilism and protectionism was as simple as erecting high tariffs and imposing import quotas. Now, it has become more sophisticated and complex: intellectual property theft, extensive use of non-tariff barriers, and abuse of anti-trust, regulatory, and tax policies are on the rise. The aim for the countries that use

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Devotees and Detractors: What’s Wrong With the China Innovation Debate


With its latest five year plan, China has made the promotion of innovation and high tech industry growth a central part of its economic strategy. As a result, there has been increasing attention within the U.S. to the issue of Chinese innovation and innovation policy. As part of the strategic and economic dialogue the Obama administration and the Chinese government are engaged in discussions about Chinese (and U.S.) innovation policy. A broadening number of books, articles, op-eds, speeches and forums are focused on Chinese innovation policy, particularly on whether it poses a threat to the United States economy.

Understanding what the Chinese are doing and what the U.S. response should be (if any) is a critically important question whose answer will shape U.S. economic prospects for decades. Unfortunately however, the debate and dialogue about Chinese innovation policy is about as informed as the Miller Beer Less Filling-Tastes Great debate.

On one side are the detractors. These are the folks who look at China’s heavy-handed statist practices, its lack of respect for intellectual property, its massive subsidies of technology and argue that there is simply no way for this model to

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China’s Reverse Robin Hood: Stealing Intellectual Property from the Poor

Many of the facts relating to the globalization of intellectual property (IP) theft over the last decade are not debatable.  For example, IP theft has decreased the market share of U.S. firms and destroyed or prevented the creation of millions of U.S. jobs.  While currently 18 million Americas are employed in IP-intensive industries, the U.S. economy loses over $20 billion annually to IP theft and in 2007 IP theft reduced global trade by 5 to 7 percent.

However once one gets beyond a simple fact-based analysis the debate over IP theft becomes more contentious.  Specifically when it comes to policy prescriptions such as the true societal cost of IP theft, enforcement strategies and stakeholders rights, there is significant disagreement.  One of the most contentious elements of IP theft is how to deal with developing countries.  As technology spreads to emerging markets, specifically in Eastern Europe and Asia, faster than legal frameworks to prosecute IP violations, theft has steadily risen.  For example, although emerging markets only account for 20 percent of the software market, they make up 45 percent of software piracy.  China is a particular conspicuous violator.  According to the

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