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Counterfeit drugs seized at John F. Kennedy International Airport in 2012. A new report estimates that counterfeiting, stolen trade secrets, and pirated software cost the United States as much as $600 billion a year.

Keith Bedford/REUTERS

China’s theft of U.S. trade secrets under scrutiny

When it comes to intellectual property (IP) theft, there’s the rest of the world, and then there’s China, a new report says. In 2015, mainland China and Hong Kong accounted for 87% of counterfeit goods seized by the U.S. Customs and Border Patrol. China’s share of trade secrets theft, though harder to track, is not far behind, claims the Commission on the Theft of American Intellectual Property in Washington, D.C., a bipartisan nongovernmental group co-chaired by former Utah Governor Jon Huntsman Jr., who served as U.S. ambassador to China from 2009 to 2011.

Stolen trade secrets, pirated software, and counterfeiting cost the United States between $225 billion and $600 billion per year, the commission estimates. The report singled out as suspect China’s targeting of biotechnology and quantum communications technology. “The massive theft of American IP … threatens our nation’s security as well as vitality,” said former Director of National Intelligence Admiral Dennis Blair, co-chair of the commission, in a press release.

Scholars often take issue with efforts to put a price tag on IP theft. In court, for example, companies frequently cite as losses the amount spent researching a product or idea. But by the time a product comes to market, that figure may be a poor reflection of its true value. “The industry standard for competitive edge in IP is in some cases just a couple of years,” says Greg Austin, a cybersecurity expert at the EastWest Institute in Sydney, Australia, and author of Cyber Policy in China. He adds that the report does not adequately distinguish between illegal IP transgressions and lawful acquisition of knowledge, citing the quantum communications example. “Scientists in many countries, including the United States, cooperate actively with the Chinese in quantum research, and it is all perfectly legal.”

Also up for debate is how best to address IP theft. The Obama administration pursued a strategy heavy on prosecutions of Chinese-born U.S. scientists (see here, here, and here), along with symbolic moves against overseas offenders, such as the 2014 indictment of five members of a People’s Liberation Army hacking unit. Policy tools improved under Obama went “largely unused,” the report said. For instance, a 2015 law enabling the president to sanction foreign countries, companies, and individuals for IP theft has not yet been invoked.

The commission urges the Trump administration to “make IP theft a core issue.” Among the policy prescriptions outlined are expanding the number of green cards available to science students—to discourage U.S.-educated scientists from returning to their home countries and contributing to their development—and ensuring that “top U.S. officials from all agencies” push China “toward becoming a self-innovating country.”

Derek Scissors, an economist at the American Enterprise Institute in Washington, D.C., who commented on a draft of the report but was not involved with writing it, says those recommendations could have been more targeted: “First, start sanctioning companies that receive stolen IP. Change their risk calculations. When that’s in place, what else is truly required will become clearer.”