Pankaj Raval (00:01.846)
Hello everyone and welcome back to Letters of Intent, the podcast for deal makers and risk takers. I am Pankaj Raval, the founding partner of Carbon Law Group. And today we are getting into one of the most important and fascinating stories in international law and global commerce in the US and around the world. It is the US-China Tariff War and China’s latest shift in how it handles intellectual property disputes, especially involving foreign companies. Things are heating up and we have a lot to say about it.

Sahil@carbonlg.com (00:32.0)
And I’m Sahil Chaudry, corporate attorney with Carbon Law Group. If you’re sourcing products from China, exporting software to Asia, or managing international partnerships, this episode is for you. We’re gonna break down the new legal risks, explain the practical fallout, and help you structure smarter deals in this new environment.

Pankaj Raval (00:50.633)
All right Sahil, so let’s start with the big headline from this week, tariffs. What’s the latest?

Sahil@carbonlg.com (00:57.358)
So this all broke open again on April 9th, 2025 yesterday when President Trump announced a dramatic escalation in tariffs on Chinese imports, raising them to 125 % across key sectors.

Pankaj Raval (01:11.573)
That is a massive jump. What is, what’s going on?

Sahil@carbonlg.com (01:13.184)
Yeah, yeah, it’s crazy. I mean, it’s like we’re at a poker table and he just raised big time. It gets bigger. Yeah, just yesterday, April 10, 2025, the White House clarified that the total effective tariff burden is actually 145%. That includes earlier penalties related to China’s alleged role in fentanyl trafficking. It’s a clear message. The US wants to decouple key sectors from China.

Pankaj Raval (01:19.845)
Right, raise the stakes. Yeah.

Pankaj Raval (01:42.293)
That is crazy. of course, China’s not just laying down, They’re fighting back.

Sahil@carbonlg.com (01:49.718)
Yeah, they’re fighting back. They’re not just taking it lying down and they’re fighting back hard. On April 9th, just hours after Trump’s announcement, Beijing imposed 84 % retaliatory tariffs on a wide range of US exports, including agriculture, automotive parts, and for the first time, media IP.

Pankaj Raval (02:09.237)
Wow, media IP, that’s not something you really think about with tariffs. So let’s zoom in a little bit on something that I think really marks a turning point here. With this 84 % tariff, China is targeting US media and digital intellectual property exports directly for the first time. We’ve seen content restrictions before, quotas, censorship, long approval pipelines. We know about China’s firewall, but these are all regulatory tools.

Sahil@carbonlg.com (02:37.518)
exactly.

Pankaj Raval (02:37.525)
This is a straight up tariff on intangible assets. My God. So we’re talking about licensing revenue from films, music catalogs, video games, video game engines, even software embedded in proprietary IP. I mean, that’s new. Historically, IP was even treated like a taxable commodity. And for the first time now, we’re seeing it being taxed in the same way as a widget or a screw. This is crazy. It was enforced through contracts, maybe protected by international treaties.

Sahil@carbonlg.com (02:42.85)
Yeah.

Pankaj Raval (03:07.391)
but it lived in a different bucket than say steel or soybeans. So what now? It seems like it’s in the crosshairs and is being treated like any other US export. If the streaming platform or game publisher wants to license US content into China, they could be facing an 84 % tax on that transaction, which means many of these media deals are unworkable overnight. Look at Netflix, this is Disney, this is affecting huge.

Sahil@carbonlg.com (03:33.016)
Yeah.

Pankaj Raval (03:36.552)
companies that maybe thought they were going to be able to skirt by these these these tariff disputes.

Sahil@carbonlg.com (03:42.796)
Yeah, that’s right. And that shift from content friction to outright financial penalty, that’s a huge signal. IP is no longer just a business asset. It’s become a front line in the trade war.

Pankaj Raval (03:55.016)
And I guess here’s where it gets more nuanced, right? Beyond tariffs, China is now leveraging law, especially IP regulation and dispute jurisdictions to control its cross, sorry, to assert control over its cross border commerce.

Sahil@carbonlg.com (04:12.748)
Yeah, that’s right. It’s now the law is being used as a tool. And it’s interesting because even when we negotiate contracts, we think of things like arbitration clauses and where something is being governed. What’s the governing law? What’s the venue? And here, China, if we think of this as that type of negotiation is saying the venue is here and the governing law is here. And that’s…

in opposition to the international IP framework that’s existed.

Pankaj Raval (04:44.018)
Yeah, I mean, and the US has been raising concerns about IP protection for decades,

Sahil@carbonlg.com (04:48.79)
Absolutely, the USTR’s 2025 special 301 report, which was released March 29th, listed three major concerns with China’s IP system. Coerced tech transfers, which are often buried in joint venture requirements, limited legal recourse, especially for foreign firms trying to enforce patents or copyrights, and there’s weak enforcement. Even when a foreign firm wins, collecting damages or halting infringement is tough.

Pankaj Raval (05:14.676)
So it sounds like China’s made some real progress here, more IP core stricter trade secret laws. The perception is still if you’re a foreign innovator in China, your IP is at risk.

Sahil@carbonlg.com (05:27.82)
Yeah, that’s right. think China has formally stated that they are improving IP protection, but this most recent move from China’s new state, from China’s state council, that’s a key development. So this brings us to a key development, China’s new state council regulation on foreign related intellectual property disputes, which takes effect May 1st, 2025.

Pankaj Raval (05:55.122)
This sounds like a serious shift. I’m sorry. Do you want to, sorry, go ahead.

Sahil@carbonlg.com (05:59.854)
Yeah, I guess I’ll, okay. So, well, and this brings us to a key development in China’s new state council regulation on foreign related intellectual property disputes, which takes effect May 1st, 2025. It’s a very serious shift. And essentially it says, jurisdiction for IP disputes that involve a foreign element will now default to Chinese courts or domestic arbitration panels. If your contract specifies international arbitration, let’s say in Hong Kong, Singapore, or

a WIPO court, those clauses may not be honored. China has broadened what counts as foreign-related. It can include where a party is based, where data is stored, or where products are sold.

Pankaj Raval (06:43.059)
So even if your agreement says, we’ll arbitrate in New York, a Chinese court can now say, nope, this is our jurisdiction.

Sahil@carbonlg.com (06:51.522)
Exactly, and that fundamentally changes how tech transfer, licensing, and even manufacturing agreements need to be drafted.

Pankaj Raval (07:02.205)
So let’s zoom out a little bit here. How does this all fit into the broader legal picture style?

Sahil@carbonlg.com (07:08.856)
So since 2019, China has expanded IP trial courts, introduced punitive damages for infringement and strengthened trade secret protections. But enforcement is still uneven, especially when cases clash with national industrial goals. And I know that there has also been a US response to China and the threat of China’s essentially hijacking American IP.

Pankaj Raval (07:36.178)
Absolutely. So it sounds like, from what I understand, in response to China’s tech rise, the US has heightened export controls, outbound investment rules, and expanded CFI US reviews. It’s all about protecting American innovation, not just physically, I guess, but also contractually.

Sahil@carbonlg.com (08:04.046)
Exactly, and all of this usually falls under international law. For example, TRIPS, the WTO’s IP agreement, sets a baseline. But enforcement is weak. China and others often comply in form but not in effect, essentially using procedural hurdles to slow or block foreign claims.

Pankaj Raval (08:23.727)
Yeah, this is I think the fundamental challenge with international law that many have faced over the years is how do you enforce your rights overseas and other countries? Yes, you have claims in the country you operate in, but once you are operating in other countries, how do you actually protect your IP? So it sounds like even if you have an airtight clause under international law, you still may not get your day in court or at least not the court that you picked.

That means your IP could really be at risk as you try to do business globally.

Sahil@carbonlg.com (08:56.27)
So I have a question for you, Pankaj. Let’s say we have a client who has developed a software. Now they’re exporting their software to China. And so that means they have Chinese buyers and presumably there are some IP protections for the American, excuse me. I’m gonna start over real quick. So, so.

Let’s run through this scenario. Let’s say one of our clients is exporting a software that they’ve developed in the US. It’s American source code. Now, they’re licensing that IP to a Chinese reseller, let’s say. How does that person, I mean, first of all, they’re gonna be subject to this new 84 % tariff, but second of all, how does that person protect themselves? mean, practically speaking,

What happens to that IP?

Pankaj Raval (09:52.249)
Yeah, it’s a big question right now, Sahil. And there’s a lot of nuance here. There’s going to be a lot of discussions about how to best protect that IP. Do you use white label, maybe private label to try to get around some tariffs? Those are issues that are going to be coming up in the future. But right now, if you’re exporting to China, whether it be exporting tech, licensing, you have a software as a service company, you first need to segment your IP. That means only license what is absolutely necessary. Keep core

code and confidential data offshore. That means you can potentially protect it more. the improvements. Be crystal clear in your contracts. Sorry. Own the improvements. Be crystal clear in your contracts that any derivative works or local enhancements are still your property. And the third thing you want to remember is just pay attention to your arbitration clauses.

You can use Hong Kong or Singapore if possible. While they might not always be honored, those are generally more reasonable, acceptable jurisdictions than trying to bring someone to court here in the United States. China, think, looks on those jurisdictions a little bit more favorably than trying to bring it back to the US. And lastly, risk adjust your pricing. Building legal risks and enforcement costs into your licensing or joint venture.

to make sure the economics work. Make sure you understand, okay, there’s going to be costs to enforcing this, does it be cost to protecting, and also consider the leakage. What’s gonna happen if this IP does get out? Because you wanna consider worst case scenarios and how you’re gonna address that from a business perspective. And also leveraging technologies that could help prevent any leakage, but those are things you’re gonna wanna look into and also invest in more in this new paradigm that we’re in.

Sahil@carbonlg.com (11:47.948)
Right. mean, it’s interesting because China is, we don’t usually think of China as a consumer market, but with these tariffs, it’s going to change the way we, it all of a sudden is bringing to light, wait a second, we are an exporter, but we’re mostly an exporter of IP and tech, or one of our main exports is IP, tech, our films, and that also comes with some soft power.

mean, a lot of American soft power is based on Hollywood. So how do you see this playing out between the US and China?

Pankaj Raval (12:26.883)
Are we, is this we’re importing from China? Yeah, how do I, how does this play out?

Sahil@carbonlg.com (12:29.07)
Sorry, sorry, just wanted to throw something conversational in there. Let me actually ask a more relevant question of what we’re saying. Okay, so let’s say you’re an American filmmaker and you want to, or actually, say you’re Netflix. What does this mean? Does this mean 84%, there’s an 84 % tariff on,

Pankaj Raval (12:37.337)
Shush, shush, shush.

Sahil@carbonlg.com (12:57.45)
your on your subscription.

Pankaj Raval (13:01.615)
Yeah, it’s a really interesting question because with Netflix, think what’s gonna come down to is are they gonna have local partners? Are they gonna be maybe trying to find ways to set up their operations in those countries to avoid these tariffs, to avoid the tariffs of selling from the US to China? So maybe they may have to actually just set up separate entities in China and operate locally and license their products from

within the country as opposed to externally. That’s maybe doable for Netflix because it has operations all over the world, but it’s gonna be much more difficult for smaller companies that don’t have the capital to set up everywhere in the world. So it’s gonna change fundamentally how businesses are going to be operating, selling their IP, and also partnering with companies inside these other countries. As we know with China, they have a lot of restrictions on who can actually even

own a business there, how you can sell there. Oftentimes you have to partner with a locally owned company. You can’t just be a foreign company operating in China. Same with India. So these are issues that are gonna come up and become even more important in this new paradigm we live in and the trade wars that we’re seeing right now.

Sahil@carbonlg.com (14:18.158)
The other thing I realize is for a firm like ours, I mean, it’s not often that we have to look at the Chinese state council’s regulations, but I think we’re living in a more multilateral world now, especially now with the IP legal infrastructure. So American lawyers, we’re gonna have to start paying attention to the regulations that are coming from other countries if we wanna protect our clients’ IP.

Pankaj Raval (14:39.374)
Absolutely.

Absolutely, absolutely. Yeah, it’s gonna be and we live in a global world and it’s becoming more globalized and you know with with with ease of travel and it’s you know, this this trade war really raises a lot of interesting questions on how our Business is going to proceed given now that there’s this additional cost to doing business How are they going to address this? Going forward so they can still continue to do business because I know several companies right now. I I just heard the

Apple and Google just stopped shipping their phones from China for now because they’re to lose money. So they’ve just stopped all shipments. So what does that mean for all these other companies? There’s toy companies that have stopped shipments because of cost now of importing toys. was joking that it sounds like my kids are to get fewer presents this year or maybe I’m going go back to woodworking and whittle them something here.

Sahil@carbonlg.com (15:17.132)
Yeah, right.

Sahil@carbonlg.com (15:27.096)
Right.

Sahil@carbonlg.com (15:31.775)
Yeah, right, right, right.

Yeah, exactly, Yeah.

Pankaj Raval (15:41.006)
I’m sure as hell not gonna spend twice as much as I did last year on presents and toys. Which raises an interesting question too, think also just philosophically about our consumption too. Is it gonna change our consumer habits? Are we going to continue to be a consumer oriented country where it’s all about consumption, Black Friday and all this, or might we come to our senses? Would it be the worst thing in the world if we bought a little bit less and consumed a little bit less?

Sahil@carbonlg.com (15:45.32)
Exactly. I mean, it

Yeah.

Sahil@carbonlg.com (15:53.9)
Yeah.

Sahil@carbonlg.com (16:03.052)
Right, right.

Sahil@carbonlg.com (16:10.252)
Right.

Pankaj Raval (16:10.894)
Probably not, maybe this will cause us to take a little deeper look at our consumer habits too. Just a thought.

Sahil@carbonlg.com (16:19.574)
I think that’s actually right. also, philosophically, in the big picture, it’s a great idea for America to develop more of its own domestic manufacturing. mean, we are quite vulnerable to this type of a trade war because we don’t have domestic manufacturing. We don’t have as powerful of a domestic manufacturing base. But in the short term, I mean, when we look at our clients, these tariffs are total margin killers.

business killers. mean, for small to mid-sized businesses, you’re gonna see people getting squeezed to the point where their margin is just erased. it’s an interesting dilemma here, which is on one hand, there might be a long-term economic vision of more manufacturing, more self-reliance for the US, and less leaning on us as a consumer economy, but

because we’ve been engineered as a consumer economy for so long, I could see this being a total margin killer and shutting down a lot of small businesses in the short term.

Pankaj Raval (17:29.067)
Yeah, absolutely, absolutely. It’s be really interesting to see how this plays out. also, what’s gonna happen, right? There’s been so much bouncing back and forth on tariffs in the last week that there’s also a lot of uncertainty. The market’s crazy. No one knows exactly what’s gonna go on and no one knows what Trump’s gonna do next, which is, I think, a big, big question here.

Sahil@carbonlg.com (17:31.724)
Yeah. Well, yeah.

Sahil@carbonlg.com (17:42.838)
Yeah, exactly.

Sahil@carbonlg.com (17:51.702)
Yeah, well, exactly. a lot of our clients who are importers, for example, I would say our advice, if you’re a company that’s importing right now and you’re heavily reliant on China, number one, given this Trump era, you’re going to have to diversify your supply chain. Right now with the 90-day pause, you’re going to need to adopt a China plus one strategy.

Vietnam, India, and Mexico, all those country-specific tariffs have been dropped. Now there’s this 10 % universal tariff that applies, but that’s definitely, obviously more competitive than a 145 % tariff on Chinese goods. So number one, if you’re relying on China, you need to diversify your supply chain now to those countries that have a lower tariff rate. Number two, register your IP in China. Even if you’re just sourcing, register your brand, your designs, your trade dress.

or you’re gonna be vulnerable to knockoffs. Number three, you need to audit your contracts. Make sure your molds, tooling, and proprietary specs are contractually yours with clear post-termination rights. And number four, monitor export compliance, especially in sectors like semiconductors, healthcare, or AI, where US rules are getting stricter, especially because there are national security interests at play there.

Pankaj Raval (19:11.99)
is really interesting. mean, think, Sahil, this probably speaks a lot what you’ve dealt with in the past in the fashion industry. Tell me a little bit, like, what do you think is gonna happen? How is this gonna affect fashion in particular?

Sahil@carbonlg.com (19:16.352)
yeah.

Sahil@carbonlg.com (19:21.792)
I think so, and China, India, China, Vietnam, those are the primary countries, probably India, China, Vietnam, Bangladesh, those are the primary countries that I’ve seen companies import apparel from. So it’s gonna be a big hit for companies that have been reliant on Chinese imports, but that’s why I say I think now is a good time to diversify your supply chain because

there are a number of orders. Let’s say you took an order from a store. Let’s say you’re a private label supplier to someone like TJ Maxx or Ross, and you’ve taken an order and your supplier is a Chinese supplier. 125 % tariff means that deal is no longer feasible. So number one, you need to use the UCC to get excused out of performance of that deal. I mean, you just can’t execute on it. Yeah.

Pankaj Raval (20:15.787)
Listen to our last episode if you want to know more about that.

Sahil@carbonlg.com (20:19.134)
Exactly. going forward, need to find, you need to diversify your supply chain. And I think apparel is going to go through a major supply chain readjustment because China, mean, you go and you visit Guangzhou or Shenzhen, you’re going to find entire towns dedicated to making specific products. And that’s, that’s what makes the economic, the unit economics work is there’s a giant infrastructure. There’s a human, there are human resources. There’s

knowledge, there’s institutional knowledge there, there’s all of the infrastructure needed to bring the unit costs down for the apparel industry. It’s a great idea to do all of that in the US, but do we actually have that comparative advantage when it comes to human resources or material resources, raw materials, to do it in a cost-effective way? mean, you’re not going to build that infrastructure overnight. So that’s the big challenge.

I think the apparel industry, we represent a lot of apparel industry clients, fashion clients, a lot of creators who are doing branded merchandise. All of that, you’re gonna have to reassess and you’re gonna have to cancel probably a lot. If you’re importing from China, you’re gonna have to cancel a lot of orders because there’s no way you’re gonna be able to go out of pocket to finance these orders. mean, you’re obviously gonna be losing money.

Pankaj Raval (21:41.611)
I mean, do you think that we’ll be seeing manufacturing coming back to the US for apparel?

Sahil@carbonlg.com (21:48.876)
Not yet. I think there are some, I think there is some boutique level manufacturing for apparel in the U.S., but it’s in terms of mass manufacturing, not yet, because there are still some other options. You still have got Vietnam, you still got Bangladesh, you still have got India. And so I don’t think you’ll see a mass development of apparel manufacturing for the mainstream in America. I think you will see it for,

perhaps other industries where the infrastructure is more built out in the US. So maybe automotive, maybe tech, maybe more IP related manufacturing, semiconductors, maybe that can start happening in the US, but it’s going to take a lot of planning to make the numbers make sense.

Pankaj Raval (22:41.226)
Yeah, I just think it also, I don’t see how this works. You know, I just don’t see how it works to bring this, these kinds of manufacturing jobs. There’s a reason we have global trade. There’s a reason we have a global supply chain is because, because we have free trade because it’s cheaper to make things in Mexico where labor is cheaper or India or China where there’s a, where there’s, there’s plenty of labor. You know, there’s, there’s a dirt of labor in these places where people are willing to work, work for a little less money. But

do a good job and get these things done. We don’t have that capacity. We don’t have that human capital here in the US. So I just don’t see how it works that we can try to onshore again after we’ve been onshoring, offshoring for the last 50 years.

Sahil@carbonlg.com (23:24.78)
Yeah, I think it’s tough. It’s gonna take time to build that kind of infrastructure. I, know, the whole premise of global trade and the globalized system is that each country has a comparative advantage. So we’re in a specialized international economy. Does that pose some dangers and risks? Definitely. mean, if you now, for example, being in a trade war with China, yeah, our whole supply chain is at risk.

Do we need to be perhaps more self-reliant, more self-sufficient? Yes, but that’s gonna take a lot of economic engineering to get there. In the near term, it’s gonna be really hard to, even if we were to bring domestic manufacturing into the US, do we have the resources to compete on an international level? How long will those tariff walls stand against true competitive factors that are coming from other countries?

Pankaj Raval (24:22.441)
Right. Yeah, I think, I mean, it’s just interesting. I think this goes against the very grain of economics to me. I was economics major in undergrad and the most efficient systems work when people do what they do best, right? In a global economy, that’s when trade works the best. That’s when global economies work the best is when everyone does what they’re optimized to do.

Sahil@carbonlg.com (24:40.578)
Right.

Pankaj Raval (24:50.15)
and it just doesn’t seem like the US is optimized for manufacturing. Especially, well, let’s just say like some of the manufacturing, know, like putting together iPhones and things like that, that is now done in China and maybe going to India. it’ll be interesting to see what the answer is. I think Trump and his administration have definitely stirred up a bee’s nest. They’ve definitely shocked the world trade order.

Sahil@carbonlg.com (24:54.327)
Right.

Sahil@carbonlg.com (24:58.019)
Right, right.

Sahil@carbonlg.com (25:16.31)
Right. Right.

Pankaj Raval (25:17.565)
We’ll have to see what that means in terms of the long-term consequences for trade. So this isn’t just a trade war. It’s really a realignment of how intellectual property is going to be treated, not as passive asset, but as a strategic leverage point. If you’re building across borders, this is the world we’re operating in now, it sounds like.

Sahil@carbonlg.com (25:39.938)
mean, imagine right now with AI also, that’s a massive, that will become a massive issue. If IP is leveraged as part of this trade war, AI becomes very relevant. I think we’re gonna have to save that for next time because we’re going over time now. look, our goal at Letters of Intent is to help you stay ahead of that curve, make sense of the legal, the strategic and the real world implications, and not just talk about theory.

Pankaj Raval (25:57.161)
Absolutely, There’s a little hole.

Pankaj Raval (26:09.704)
Thank you guys for listening. Remember to like and subscribe to stay up to date on the latest legal developments for dealmakers and risk takers. We will see you next time. Thank you again for listening and we can’t wait to hear you back. sorry. And we can’t wait to have you back for our next exciting podcast. Or sorry. And we can’t wait to have you back for our next exciting episode. Thanks Sahil.