IPR protection causes a US-China trade war.

In Figure 2, an increase-decrease-increase fluctuation appears from Orders 1 to 4 when DLNBT responds to DLNIPPS and, subsequent to which, it remains stationary. The reason is that because the strength of Chinese intellectual property protection increases in the short term, China may exert certain technological restrictions over imports from America or possess certain technological superiorities in exports to America, such that America inevitably takes measures to safeguard imports and exports in the long run to prevent the occurrence of dumping, among others. The response of DLNBT to DIV slightly declines in Orders 1 to 2 and then tends to be stationary. Such a phenomenon illustrates that the intellectual property trade barrier established by America has a direct influence on China–U.S. trade. In view of the American economic strength, it has the ability to control the level of China–U.S. trade to a certain degree through trade investigations and additional tariffs. Furthermore, such a conclusion conforms to the process of the 2018 China–U.S. trade war.

Nine types of interplay listed in Figure 2 were also observed to eventually be inclined to be stationary, indicating that impulse response functions based on the VAR model have their own significance. In addition, when one variable changes, the other variable should be adjusted through a mechanism during a certain period to again ensure their coordination.

Finally, Granger causality tests were performed for lag intervals of 1 to 3 years using eviews8.0. The test results are presented in Table 5.

As manifested by the Granger causality test, LNBT is not the Granger cause of LNIPPS and IV is not the Granger cause of LBNT during 1- to 3-year lag intervals. However, LNIPPS and LNBT serve as Granger causes of LNBT and IV, respectively, during 1- to 2-year lag intervals.

Summary

In this article, a VAR model was built to clearly reflect the relationship among intellectual property protection, intellectual property trade barriers, and China–U.S. trade: China–U.S. trade changes under the influence of the past acts of all three, which can be used as an essential reference for the intellectual property–trade relation prediction and the decision making between China and America. The Granger causality tests indicated that the strength of Chinese intellectual property protection is the Granger causality for the China–U.S. balance of trade and that the China–U.S. balance of trade is the Granger cause of the number of Section 337 Investigations concerned with Chinese intellectual property.

The China–U.S. trade structure may result in the fact that the strength of Chinese intellectual property protection is the Granger cause of the China–U.S. trade balance. On one hand, Chinese enterprises lack core competitiveness. Enhancing Chinese intellectual property protection is beneficial to China’s improvement in enterprise innovation ability to increase corporate exports. By probing the enterprise data released by the World Bank, Yin Zhifeng et al. (2013) concluded that enhancing intellectual property protection strength can elevate the enterprise innovation output of the host country by increasing enterprise R&D investments. In addition, Li Chuntao et al. (2015) conducted a survey of the micro-data of transnational companies. Based on his findings, favorable intellectual property protection can accelerate corporate investments in innovation. In contrast, America is unwilling to expand China-oriented high-tech products because of trade control and a blockade on techniques. Intellectual property is viewed as the strategic resource and core competitiveness in the ascendant of America, a great power in the areas of the economy, science, and technology. Therefore, effective intellectual property protection becomes the key to guaranteeing economic and technological progress. For this reason, China maintains its technology trade deficit with America and such a deficit shows an annually progressive increasing tendency during the past 10 years. In December 2010, American exports to China reached US$10.12 billion, with technology imports of US$5.75 billion, representing only 56.8% of this total. As a leading technology country, America exports new and hi-tech products to China; however, the proportion of such products was only 22.4% of the 2010 global total. Apparently, the United States does not have the most technology exports to China, which contradicts its leading position in technology. To break through American technical restrictions, China needs to improve its self-innovation capability, which depends on the steady strengthening of Chinese intellectual property protection.

The China–U.S. balance of trade is the Granger cause of the Section 337 Investigation count involving Chinese intellectual property. Such a fact signifies that the former may exert influence on the intellectual property trade barrier built by America, which is also closely associated with the present China–U.S. trade structure. From the viewpoint of Yu Lefen (2011), the reasons that China runs into the intellectual property trade barrier include trade protectionism, trade friction intensification, and novel advantages of the intellectual property barrier. According to Zheng Minghui et al. (2013), China encounters the intellectual property barrier primarily because trade protectionism caused by an economic recession in America is on the rise. Furthermore, the research findings of Ferrantino (1993) provided that if the country’s intellectual property protection is strong enough, a number of intellectual property treaty members may promote venue-expenditure flows in international fields. Without a doubt, the Section 337 Investigation is one of the major approaches to building intellectual property trade barriers, which reflects America’s attitude and policy on China–U.S. trade to a great extent.

The VAR model in its entirety shows that, when America as the largest developed country throughout the world strengthens its intellectual property trade barrier, China—the world’s largest developing country representing the interests of another group—should enhance its intellectual property protection, persistently make progress in its intellectual property undertakings, and improve its comprehensive intellectual property strength to catch up with America in the area of intellectual property power. The model also shows that the China–U.S. trade balance may suffer relevant impacts and again achieve balance through long-term adjustments. In such an imbalance, immeasurable economic losses together with a series of unnecessary troubles and conflicts may be incurred on both China and America. One country is in a critical period of reform and opening and the other is in a leading global position.