On cyber relations with China, restraint is the best approach

By Enea Gjoza

Industrial espionage has been a constant source of tension between the U.S. and Chinese governments; however, last year, it was China that was on the defensive for the theft of American trade secrets.

This is no longer the case. With the extent of U.S. spying operations now widely known, the Chinese have perfect cover to continue their attempts to erode American market dominance in strategic sectors. Rather than engaging in damage control to mollify the harm caused to U.S. businesses by government espionage, the U.S. has taken the counterproductive stance of aggressively going after China for practices it has also been proven to employ, while simultaneously doing nothing to rein in the intrusive measures that have tarnished the reputations of U.S. firms globally.

Despite official denials, China’s history of spying on foreign firms to obtain intellectual property and trade secrets is well documented, and is also in line with the practices of rising powers historically. The U.S. itself engaged in substantial theft of British manufacturing equipment and know-how when in order to build its industrial base in the early 1800s. However, recent U.S. attempts to dissuade Chinese spying, including the indictment of five alleged People’s Liberation Army (PLA) hackers and threats of trade and diplomatic measures, are excessive and hypocritical given the U.S.’ recent activities.

In addition to targeting Chinese national banks, major communications firms and the Trade Ministry, U.S. intelligence has also spied on economic targets around the globe, including the World Bank, the International Monetary Fund (IMF), and the Brazilian oil company Petrobras. Although the U.S. insists information gathered is not shared with American firms for economic purposes — which might very well be true — the problem is that practically no foreign government believes this to be the case. This distrust is evident in that even friendly nations are unnerved by details of the NSA’s activities. The German Interior Minister publicly suggested that those who wanted to protect the privacy of their data should avoid using American servers. Meanwhile, Brazil and India are both considering legislation requiring foreign firms to store the data collected locally in-country.

The distrust generated by the U.S. government’s actions has had a real global cost for the technology industry, one of the most vibrant sectors of the U.S. economy and also one where the U.S. continues to maintain an overwhelming comparative advantage. According to a study by the Information Technology & Innovation Foundation, the spying revelations will cost the cloud computing industry alone an estimated $22 to $35 billion from 2013 to 2016, and firms like Boeing and Verizon have already lost multibillion dollar contracts as a result of their perceived ties to the U.S. government.

In China, American firms like IBM, HP and Qualcomm have all witnessed a decline in sales due to suspicions of their cooperation with the NSA; regulators even raided Microsoft’s China offices recently under the auspices of an anti-trust investigation. Since U.S. firms face draconian penalties for refusing to comply with government requests (e.g., the $250,000–a-day penalty Yahoo! was threatened with for refusing to turn over user data), it is not hard to see why trust of even the most reputable U.S. brands runs low abroad.

Given China’s historical refusal to admit culpability for cyber espionage and its tendency to respond with hostility to foreign attempts to pressure it, engaging in a tit-for-tat diplomatic conflict over cyber warfare is detrimental to U.S. interests. Through its own widespread and unrepentant spying, the U.S. government has already caused significant damage to American industry globally and ceded the moral high ground on the issue. Continuing to browbeat China only ensures further retaliation against American companies, squeezing them out of what will undoubtedly be the world’s largest market for at least the next few decades. The U.S. would be much better served by ending its attempts to use the tech industry as a platform for its foreign and domestic espionage, and instead allow crucial U.S.-led industries like cloud computing and web hosting to operate truly independently, fulfill their security obligations to their customers, and rebuild their brands with their global clientele. The costs of continuing to do more of the same will be an erosion of our global leadership in technology and computing, and a weakening of the economic base that underpins U.S. power.

Enea Gjoza is an Intelligence Research Fellow with Young Professionals in Foreign Policy. Follow Enea Gjoza on Twitter @eneag1 and YPFP @YPFP. This article is also available on the YPFP’s Charged Affairs.

The opinions expressed in this article are the author’s own and do not reflect the views of their employer or Young Professionals in Foreign Policy.