Schwab Strategist: China Needs Intellectual Property Protection

The Dow Jones Industrial Average soared higher by more than 300 points Monday morning, or more than 1.5 percent, as the trade war language from last week moderates. 

Part of blame for last week's market selloff markets belongs to expectations of a trade war with China. On Thursday, President Donald Trump announced $50 billion in tariffs on Chinese imports. 

At the heart of the trade dispute between the U.S. and China are accusations of the country stealing billions in intellectual property. In reality China, needs intellectual property reform of its own, perhaps more than any other country, according to one observer. 

"China wants IP protection," Jeff Kleintop, chief global investment strategist at Charles Schwab, told CNBC. "Remember, China is the leader in new patent applications — they have a lot of IP to protect as well. They need a court system to support that."

If no further clarity is seen in the coming weeks, the stock market will continue to experience volatility, Kleintop said.

Why It's Important

A trade war could cause inflation to become a problem, Kleintop said. The U.S. hasn't had a trade war in 90 years, and for "a lot of good reasons," the Schwab strategist said. The "trade spats" seen so far are unlikely to translate into high degrees of inflation, since most of the potential tariffs aren't tied to consumer products, he said. 

What's Next

Chinese Premier Li Keqiang said Monday his government continues to favor easing access for American companies in the country, CNBC separately reported. The negotiation of talks between China and the U.S. will likely remain ongoing, as China wants to avert a trade war.

"With regard to trade imbalances, China and the United States should adopt a pragmatic and rational attitude, promote balancing through expansion of trade and stick to negotiations to resolve differences and friction," Li reportedly said in Beijing.

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