Ignoring Patent Monopolies: Free Trade Retaliation Against Trump

Most forms of retaliation that countries are planning in response to Donald Trump’s tariff-fest involved higher tariffs and import restrictions. These measures may hurt the U.S. economy, but they will also hurt the country imposing them. The logic is that the measures will be crafted so that the pain in the U.S. will be greater than the pain the other country experiences.

That will likely prove correct, but the EU, Canada, and other newly created enemies can go one better. They can pursue retaliatory measures that will badly hurt the United States while actually helping their own economies. Specifically, they can announce a policy of no longer respecting U.S. patent and copyright monopolies for as long as Donald Trump is playing his silly tariff game.

There is serious money at stake here. Last year the United States received almost $150 billion in royalties and licensing fees. That’s more than 5 percent of all after-tax corporate profits.

And this is just in straight fees. It doesn’t count all the cases where the intellectual property is embedded in the product. For example, it would not count the value of the software in a U.S. made computer that was shipped to Canada or the EU. U.S. computer makers would have a much harder time competing overseas if their competitors could use the Windows operating system and other Microsoft software at zero cost.

There actually is precedent for not respecting the patents of countries in a confrontation. The United States used the Trading with the Enemy Act in World War I to allow compulsory licensing of patents held by German companies or nationals. This meant that companies were free to use these patents without permission of the German patentholders as long as they paid a modest licensing fee set by the U.S. government. Canada, the EU, and other U.S. trading partners can go the same route.

The neat aspect to this form of retaliation is that it would actually directly benefit consumers living in the countries that go this route. For example, they could get the latest drugs for treating cancer or heart disease as cheap generics, rather than paying the thousands or tens of thousands of dollars that a Pfizer or Merck might charge.

No one would stop them from making copies of Disney’s latest movies and distributing them freely. And computers would be much cheaper if they didn’t have to pay licensing fees to Microsoft for its software. This would be a great example of doing well by doing good.

My guess is that if our trading partners went this free trade route to retaliation is that it would also provoke serious fears in corporate America in ways that other forms of retaliation never could. If people in other countries got used to cheap drugs and cheap computers and free versions of the latest Hollywood movies, it might be difficult to go back to the old system. The money mill for many huge U.S. companies may be permanently derailed.

Most of us here also would actually be very happy with more of a free market in this way. If we didn’t have patent monopolies on prescription drugs, we would likely be spending closer to $100 billion a year rather than $650 billion. The difference comes to roughly $5,000 for every household in the country.

Real free trade, not the fake stuff they put in our trade agreements, does offer large gains. Trump’s rich friends at Mar a Lago would be very unhappy if people elsewhere in the world, and possibly here as well, realized how much they could benefit from removing or weakening patent and copyright monopolies.

It would be a great act of courage for foreign leaders to go the free trade route to combat Donald Trump’s loon tune tariff regime, but it would likely be very effective in putting an end to his stupid stunt. We’ll see if they pick up the sword.