Does Technology Transfer from the US to China harm American firms, workers, and consumers? A historical and analytic investigation

Abstract: Decades of spectacular economic growth have made China into an important geopolitical player. As Chinese companies improve their capabilities across several areas of advanced technology, including AI, some U.S. policymakers and pundits lament the country’s “unfair trade practices” and serial “theft of American intellectual property”—particularly, through so-called forced technology transfer. China hawks claim these practices hurt U.S. companies, workers, and consumers. Do Chinese technology practices harm economic efficiency? What are their distributional consequences? To address these questions, we explore the different modalities of international technology transfer and flesh out their economic consequences. We also investigate the recent history of technology transfer, providing examples from the industrialization experiences of European countries and the Asian Tigers. We surmise that current Chinese processes are neither novel nor alarming from the standpoints of economic efficiency or distribution: U.S. firms are collecting record royalty payments for their IP from China and generating gangbuster profits due to their access to Chinese labor, suppliers, and the country’s growing consumer market. American consumers benefit from US-China economic interdependence and so do some workers. The consequences for the U.S. economy as a whole are positive. While we are agnostic about whether these practices threaten America’s national security, we offer ideas for how to prevent China from acquiring its most sensitive military technology.