The U.S. and China are embroiled in a trade war for the ages. But as the protracted dispute rages on, its origins and purpose have become obscured by the industry’s growing anxieties.
At the FDRA’s Footwear, Trade, Distributions and Customs conference in Long Beach, Calif., on Tuesday, the organization’s director of government and regulatory affairs, Thomas Crockett, took an opportunity to remind attendees of the issues that have fanned the flames of the conflict.
Intellectual property concerns have long been a staple of the U.S.-China rivalry, with brands and government agencies alike seeking to root out copycat Chinese products that fool consumers and pull market share from legitimate distributors.
The federal government has become increasingly concerned with the issue in recent years, as online marketplaces populated by third-party sellers continue to grow and thrive. Seeking to understand the scope of issues concerning counterfeits and IP theft on these platforms, the Senate commissioned a report from the U.S. Government Accountability Office (GAO), which was released in January of 2018.
Out of 47 products purchased by investigators on Amazon, Walmart, eBay, Sears Marketplace, and Newegg as a part of the report’s research, 20 were found to be fake. The team specifically targeted products that are frequently duped, like Nike Air Jordan sneakers, Yeti travel mugs, Urban Decay makeup, and UL-certified phone chargers.
The findings led to the Senate’s increased focus on counterfeit sales on online platforms, Crockett said—though savvy brands cottoned onto the issue long before.
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In 2016, Birkenstock became one of the first leading commercial brands to take a stand against Amazon’s raging counterfeit issue. The footwear giant severed ties with the online marketplace, seeking to shed light on the issue of fakes on the platform. At the time, U.S. CEO David Kahan released a public memo expressing his displeasure with the retailer’s subpar efforts to face the problem.
“The Amazon marketplace, which operates as an ‘open market,’ creates an environment where we experience unacceptable business practices which we believe jeopardize our brand,” he said. “Policing this activity internally and in partnership with Amazon.com has proven impossible.”
The highly publicized breakup spurred promises from Amazon to do better by its brands and consumers. Over the past few years, the company has rolled out a handful of tools designed to protect sellers’ IP and help shoppers spot fakes, but with 600 million products across its site, the task seems like a herculean game of whack-a-mole.
Amazon isn’t the only issue, Crockett assured. A Vice documentary highlighted China’s underground market for counterfeit sneakers. Adeptly crafted Yeezy and Nike knockoffs are sold through fan forums and other in-the-know sites. The business has become so lucrative, a Vice source said, that it’s currently sustaining huge swaths of manufacturing in certain regions of China.
According to Crockett, these rampant counterfeiting issues prompted the current trade war. “IP started the tariffs,” he said.
In March of 2018, a few months after the GAO report’s release, the White House launched an investigation into “China’s Acts, Policies, And Practices Related to Technology Transfer, Intellectual Property, And Innovation” under section 301 of the Trade Act of 1974. The directive states that the president can retaliate against any foreign body that infringes upon U.S. trade rights or carries out discriminatory trade practices against the country’s commerce.
“The president has the ability to invoke section 301 if he finds that a country is carrying on discriminatory IP practices,” Crockett explained. Delving into issues like cyber-theft and counterfeiting launched the crackdown on China that’s still taking place today, he added.
While the tariff dispute has had the intended effect of putting China on notice, Crockett said the negotiations have also imparted “mixed messages,” given the concerning trade deficit that has resulted from the deteriorating relationship.
“There’s a huge trade deficit and everything now seems to be about how to reduce it,” he said.
While President Trump struggles to keep China on the hook with tweeted threats, U.S. exports to the country continue to founder.