Their models are wack.

Republican China hawks have a problem. They're eager to sell us on the notion that China is, as old GOP hand Newt Gingrich puts it, "the greatest threat to a free America that we have faced in our lifetime." Gingrich pins China's ascendancy on its "totalitarian system, extraordinary organization, and immense population," brushing aside the economic liberalization and market reforms initiated by former leader Deng Xiaoping—which ushered China out of Maoist isolation and into the global market—as mere smoke and mirrors, a "40-year-long propaganda campaign" masking the "real China."

This presents a quandary for the hawks. If they argue that China's meteoric rise is indeed the fruit of its "totalitarian system and extraordinary organization," does that mean they'll have to eat their words on the virtues of free enterprise and stop scoffing at socialist economies? Could it be that China has cracked the code on making a centrally planned economy thrive, a feat unseen elsewhere?

Fortunately for the Republican hawks, a more politically palatable theory has taken root: China's ascent to becoming the world's second-largest economy and a tech behemoth wasn't a result of economic reforms or strategic planning but rather stealing.

Behind the Numbers

In a landscape where political rhetoric often blurs reality, the narrative spun by America First Republicans and echoed by institutions from the FBI to the Organization for Economic Cooperation and Development (OECD) portrays China's remarkable growth as the grand larceny of intellectual property (I.P.). Claims that China has siphoned off $200 billion to $600 billion annually in I.P. have found a home in numerous reports, with some hawkish voices now inflating that estimate to trillions.

These reports, echoed through the media and in the halls of Congress, have one goal, perfectly captured by Trump-era Trade Representative Robert Lighthizer. "My objective was to convince people that China is a problem, an existential threat to the U.S.," Lighthizer told The Wall Street Journal. "I think we convinced people."

Indeed they did. A recent Gallup poll reported that 50 percent of Americans now view China as America's "greatest enemy"—four times as many as in 2018. (Russia took second place, despite its war with Ukraine.)

The campaign to make Americans hate and envy China has been so successful that American media and politicians now openly urge us to prepare for war with China. Sen. Ted Cruz (R–Texas) has claimed that "China is waging a thousand-year war against the United States." Washington Times foreign policy correspondent Bill Gertz recently posted on X that China clearly sees war with the United States as "inevitable." And in 2023, four-star Air Force general and head of Air Mobility Command Mike Minihan sent a memo to the officers he commands predicting that in two years, the U.S. will be at war with China. "I hope I am wrong," Minihan's memo read. "My gut tells me we will fight in 2025."

Beneath this crescendo of warnings, however, lie some questionable assertions. Central to the argument are two reports, one by the U.S. International Trade Commission (USITC) and another by the OECD, which have become the linchpins of the fearmongering campaign against China. A closer examination reveals that these reports, and the staggering figures they tout, are little more than sloppy guesswork grounded in speculative modeling rather than solid evidence.

The USITC study, China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy, was published in 2011. The OECD study, Trade in Counterfeit and Pirated Goods, wasfirst issued in 2008 and updated in 2016. Nearly every other report on the theme ultimately cites these two studies.

The OECD's bold assertion that China's I.P. theft tallied up to a whopping $200 billion to $600 billion annually throughout the 2010s hinges on a dubious concoction known as the General Trade-Related Index of Counterfeiting (GTRIC) for products. This algorithm supposedly crunches customs data to gauge the global counterfeit trade, attributing a significant chunk of it to China.

Delve into the mechanics of the GTRIC and you'll find it operates on a blend of educated guesses and less educated assumptions. Modelers assign two "propensities": the propensity of a given country to export counterfeits, and the propensity for certain product types—like sneakers or watches—to be counterfeited. Comparing these figures with data on all international trade, the model generates estimates of the total volume of counterfeit goods from various source nations.

The critical moment in the model's calculations, and the place where the methodology raises eyebrows, is the determination of a "fixed point"—essentially, a guess at what percentage of goods in a specific category are fake. Depending on which number you pull out of the hat, the scale of counterfeiting can swing wildly from mere billions to an eye-watering trillion dollars annually. Therefore, determining the most accurate fixed point to use is vital for the results of the study to be trustworthy.

So how did the OECD wizards arrive at their fixed point? They took a stab in the dark. Initially setting their sights on a 20 percent figure for "counterfeit or pirated apparel, leather articles, and tobacco products exported from Asian economies," they dialed it back to 5 percent after deciding 20 percent "appeared excessive." Noting that the amount "could be higher" and needing to establish a "credible ceiling" for counterfeit trade, they picked 10 percent as their high fixed point.

This manifestly arbitrary methodology was then glorified in various reports as "rigorous." Further guesswork was needed to factor in how much counterfeit merchandise customs actually seize—a variable that drastically swings the estimated total of counterfeit trade from less than $40 billion to over $200 billion.

Ultimately, the OECD planted its flag on a $200 billion estimate for 2005's counterfeit trade, with the caveat that it could be much more. Thus, a figure of legend was born.

Fast forward to 2016, when the OECD unveiled a headline-grabbing figure: "In 2013, international trade in [counterfeit] products represented up to 2.5 percent of world trade, or as much as USD $461 billion. This is the equivalent of the GDP of Austria, or the combined GDP of Ireland and the Czech Republic."

This 2.5 percent figure has since become a talisman for anyone keen to substantiate claims of rampant I.P. theft by China, despite the foundation of these claims being as solid as quicksand.

Even with all of this guesswork at play in the OECD reports, the 2011 USITC report makes them look like high scholarship. Focusing on I.P.-intensive U.S. firms operating in China in 2009, the report claims these firms "reported losses of approximately $48.2 billion in sales, royalties, or license fees" due to I.P. infringement. Yet a closer look reveals the range of estimated losses, stretching from $14.2 billion to $90.5 billion, was based not on direct reports from companies but on third-party guesstimates from industry associations. Essentially, these firms were parroting back guesses fed to them by industry groups with a vested interest in painting the grimmest picture possible to grab government attention. The claim that the oft-cited USITC report was based on accounts by victim companies is a fraud.