Complementary trade structure and U.S.-China negotiations over intellectual property rights

This paper explains the ineffectiveness of America's unilateral pressure and the absence of U.S.-China trade war over the IPR issue by tracing the effect of a system-level variable, the structure of trade between the two countries, on the level of domestic support for sanction threats in the United States. It argues that since trade between the United States and China is highly complementary (i.e., the United States imports from China mostly commodities it no longer produces at home), America's sanction threats suffered from domestic divisions resulting from the divergent policy preferences of export-seeking and import-using industries. In other words, U.S. sanction threats in these cases enjoyed backing only from the export-seeking sectors, who would gain only if the sanction threat succeeded. Unlike trade negotiations between the United States and its competitive trading partners such as Japan and Europe where the United States exports to the partner country commodities very similar to those it produces at home, there existed virtually no or only a very small import-competing sector that would benefit from, and hence support, sanctions whether threats succeed or fail. Instead, America's sanction threats against China have encountered opposition from a large import-using sector that makes extensive use of, and has in some ways become dependent on, the labor-intensive products made in China. Divergent policy preferences between the export-seeking and import-using sectors not only reduced the credibility of American threats, but also diminished the chances of aggressive escalation leading to a trade war involving tit-for-tat retaliation.