The Times reports this morning that the Bush administration appears ready to take stronger measures to try to punish China for not enforcing U.S. copyrights. At one point the article raises this issue in the context of the huge U.S. trade deficit with China. While there is a tendency to discuss various U.S. trade issues with China in the context of one big China bash fest, it is worth noting that the interests of the workers who have lost jobs or are getting lower wages as a result of the trade deficit with China are directly opposed to the interests of the copyright holders who are trying to extract larger royalty payments from China. Other things equal, if China pays more money in royalties, the value of its currency will be lower against the dollar. If its currency is lower, then imports from China are cheaper and more U.S. manufacturing jobs are displaced. China has been deliberately holding down the value of its currency against the dollar by buying up vast amounts of dollars, however there is reason to believe that they are changing this policy and are prepared to let their currency rise more against the dollar. The Chinese currency would rise more quickly if it is not forced to pay more in royalties to U.S. copyright holders (assuming that its central bank buys the same amount of foreign reserves in both cases). Its economy will also grow more quickly if it is allowed to continue to obtain copyrighted material at its marginal cost of production (often near zero), increasing its imports from the United States. In other words, there is a clear conflict of interest between people who want to impose tougher copyright enforcement on China and people who want to see the value of China's currency rise so that U.S. manufactured goods can better compete, even if they may both have complaints against China.
--Dean Baker
