According to U.S President Donald Trump, “‘Tariffs’ is the most beautiful word in the dictionary.” While many countries’ heads of state flocked to the Oval Office to negotiate Trump’s tariffs, the question remains whether the increased tariff rates currently imposed can stifle free trade and innovation to an extent. The discussions around Intellectual Property (IP) protections in an increasingly taxed trade regime come to the fore. In a complicatedly connected world where trade relations govern significant aspects of the world’s economic and trade wealth, can uncertainties posed by the tariff rates affect the global IP landscape?
What are Tariffs?
The World Trade Organisation (WTO) defines ‘Tariff’ as customs duties on merchandise imports. Essentially, when a country imports goods or services from another country, it imposes a tax on such goods or services. This tax is a tariff. Though the tariff is paid by the companies that import the goods or services, it is included and passed down to the end price that the consumers pay for such imported goods or services, making it expensive than domestic goods and services. This ensures that the homegrown goods or services are not adversely impacted by the imported ones.
The Trump administration, during his second term, aggressively issued soaring tariff rates to support the “Make America Great Again” rhetoric. President Trump believed that America was subjected to higher tariff rates by many countries, which was unjust, and hence levied “reciprocal tariffs”, which are intense rates against countries that had levied significant tariffs against the United States. He also sought to address the injustices of global trade and increase American production of goods and services, thereby bettering the economy.
What the TRIPS and WTO have to say about Reciprocal Tariffs:
The World Trade Organisation (WTO) is governed by a set of multilateral treaties. The General Agreement on Tariffs and Trade (GATT), which was initially signed in 1947 and later amended in 1994, is one of the fundamental agreements. Unless otherwise agreed, no country may impose tariffs higher than those specified in its Schedule of Concessions, according to Article II of the GATT. This implies that the United States would have a maximum tariff rate that it could impose on countries under Schedule XX of the GATT, which it shouldn’t go above. Countries that are impacted by a violation of this article may formally complain to the WTO’s Dispute Settlement Body (DSB). Nonetheless, it is acceptable to raise tariffs following discussions, agreements, and national approval. Furthermore, it is customary for developing countries to levy high tariffs against developed nations to ensure the growth of the domestic industry of developing nations.
While Trade Related-Aspects of Intellectual Property Rights (TRIPS) does not explicitly have provisions related to Tariffs, it does provide minimum protection for copyright, trademarks, patents and other IP elements in the signatory countries. Articles 3 and 4 of the Agreement deal with National Treatment and the Most-Favoured-Nation Principle. The National Treatment Principle states that Members must be conferred the same level of IP Protection as the country’s nationals. The Most-Favoured-Nation Principle establishes that concessions or benefits rendered to nationals of a country must be granted immediately to the other Members. TRIPS also presents enforcement channels for Members to initiate against IP infringements or violations by other countries. Article 41 states that Members are to provide adequate enforcement measures, while Article 42 deals with specific civil remedies each Member state must have domestically.
While these articles deal strictly with IP Protection, the US levying up to 245% tariffs on only China can be construed as a violation of the National Treatment and Most-Favoured-Nation Principles, wherein it can also be interpreted as a way of enforcing IP norms through trade channels. Conforming to IP norms of Members must be brought about only by using the enforcement channels stipulated in TRIPS.
In 2018, during Trump’s first Presidential term, sweeping tariffs were imposed on Chinese technology, counterfeit goods, medical goods, and batteries, copied from alleged theft of American technologies and products. This step was violating TRIPS legitimate enforcement channels by using trade channels to enforce IP norms. While the 2025 tariffs were mostly imposed for trade reasons, they echo undertones of reasoning for the 2018 tariffs.
How can Tariffs Impact IP?
The most immediate effect on IP due to tariffs that could be seen was when TikTok (which is a Chinese company) was flooded with videos of Chinese manufacturers and counterfeiters that claimed that many US luxury brands, such as Birkin, Louis Vuitton, Hermes, Chanel and many more, secretly manufacture their products in China for a very cheap price and add “brand value or money” to those goods for selling it in the US at exorbitant rates. These manufacturers and counterfeiters claimed that they would now, due to tariffs against China, cut out the brands and retailers in the middle to directly deliver these luxury brand products to the American consumer at extremely cheaper rates. While the claim of such brands having manufacturing stations in China remains unsubstantiated, it seems like a perfect façade to pass off counterfeited goods as “branded” ones, which is a blatant IP trademark and trade dress violation. Thus, counterfeit risks rise when higher tariffs are imposed.
While Tariffs increase reliance on domestic industries, making the government grant stronger IP protections to R&D or innovations within the country, many companies will now be wary of entering into partnerships, R&D collaborations, and technology licensing agreements with countries that lean towards domestic companies in IP protection. Due to this, cross-border companies might not feel their IP is protected enough to foster collaborations with such countries.
Furthermore, when countries tighten their IP regime within the country, especially for domestic industries, developing nations will follow suit. This could be beyond the TRIPS minimum standards requirement. This shrinks IP harmony and global knowledge sharing networks, stifling growth and innovation.
Heavy tariffs make countries choose other nations to trade with. This leads the way to Free Trade Agreements with specific nations in a particular region, thus concentrating trade and IP protections in those regions. This leads to IP fragmentation.
IP-heavy industries such as pharma, software and semiconductors will start facing dual regulations. Trade and IP regulations. Since compliance with trade regulations is more urgent and profitable, IP regulations may take a backseat. For instance, International IP or patent filing will be deprioritised due to uncertain times and markets.
How Must IP Strategies be Aligned with Trade Policies?
Trade between two nations can flourish if there exists trust and ethical utilisation of each other’s goods and services. To ensure that, there must be a strong IP framework. During trade negotiations, countries must promise that they will protect the IP of the imported goods from each other. This can be done by agreeing to quicker enforcement procedures and stronger protection of copyright, trademark and trade secrets.
This helps nations not just agree on tariff rates or volume of trade, but also attracts Foreign Direct Investments (FDI) because of the strengthened IP framework. Furthermore, companies that want to license their IP or models are motivated due to the conducive atmosphere fostering IP and trade. This results in increased Research and Development (R&D), companies wanting to set up production in the country and a rise in Foreign Direct Investments.
For instance, the North Atlantic Free Trade Agreement or NAFTA (now replaced by the United States-Mexico-Canada Agreement or the USMCA) dealt with IP protection. This meant the United States would grant extended copyright terms, stronger enforcement and enhanced protection of trade secrets. In this case, companies situated in Mexico and Canada would be motivated to either license their models to companies in the US or set up their production in the US. Either way, it would result in increased trade in the North American region, creating a Free Trade Zone (FTA).
The Way Forward
Thankfully, many countries are ready to negotiate the tariff rates imposed by Trump. Most talks lead to lowering the rates that benefit both countries involved in the negotiation. However, countries like China and Canada have simultaneously initiated complaints against the US in front of the WTO Dispute Settlement Body. While utilising the WTO redressal mechanism can adjudicate the tariff issue and, in turn, the IP ramifications, using multilateral negotiations, forums and talks to foster IP standards and harmony might be the need of the hour. Restoring the importance of multilateral systems, including equitable intellectual property laws in contemporary trade agreements, and making sure that innovation stays globally cooperative rather than geopolitically competitive, is of utmost importance at this juncture.
Authored by: Ms. Chinmayee Hegde
Blogger, The IP Press
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