By charging five Chinese military officers with hacking into U.S. corporations on behalf of Chinese industry, the Obama administration claims it is taking a tough step to protect the intellectual property of American companies. In fact, the move isn’t so much tough as toothless.
Given the massive U.S. snooping program revealed by former National Security Agency contractor Edward Snowden, the Justice Department took pains to explain why China’s cyberespionage is bad but America’s isn’t. Its argument: The U.S. hacks only for national security purposes, whereas China is stealing trade and technology secrets at the behest of Chinese companies.
“This is a tactic that the U.S. government categorically denounces,” said Attorney General Eric Holder. “We do not collect intelligence to provide a competitive advantage to U.S. companies, or U.S. commercial sectors.”
Many people might not take him at his word. But in my experience as a high-level Commerce Department official in the Reagan administration, it is true. GE or Boeing or Intel cannot call up the NSA and ask it to obtain specific information, as it seems Chinese companies routinely do with their military and spy agency hackers.
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But so what? The administration is basing its argument on the assumption that it is morally or economically wrong for governments to help corporations obtain valuable industrial, technological and commercial information. The White House further assumes that this is a widely accepted point of view. But neither of those assumptions is necessarily valid.
It has become increasingly obvious that China and many other countries don’t fully accept the American way of thinking. For one thing, many countries have state-owned or partially state-owned corporations.
Renault is partly owned by the government of France. Singapore Airlines is partially owned by the government of Singapore. Most of the largest oil companies are owned by governments. In China, this is writ large: State-owned enterprises generate half or more of the nation’s GDP.
But not one of the above countries draws the stark line between government and business that the U.S. does. To be sure, they are all members of the World Trade Organization and other so-called free-trade pacts. But that doesn’t deter them from assisting companies they consider vital to their national economies.
Political economists make a distinction between countries that are largely devoted to free-trade policies and those that are more devoted to mercantilist policies. In this taxonomy, the U.S. is a free-trader; it generally keeps markets open to imports and doesn’t protect or promote key industries or companies. The problem for Washington is that, aside from Britain and a few others, the rest of the world accepts a degree of mercantilism, or a belief that it’s good for governments to subsidize exports or support favored industries to speed up economic growth and secure technological advantage.
Many countries have found ways to implement mercantilist policies while avoiding censure under the rules of the WTO and other agreements. For example, Ireland provides generous investment subsidies to induce companies to move production there. Japan’s recent currency deflation is seen by some as a deliberate move to boost its export industries. Washington has averted its eyes from the mercantilism of these and other allies for reasons of national security, alliance maintenance and theoretical economics.
Now, suddenly, in the case of Chinese hacking, Washington has drawn a line in the sand. It’s not going to work. The Chinese government certainly isn’t about to extradite five members of the People’s Liberation Army to face trial in a U.S. court. No one charged will suffer any punishment beyond an inability to visit the United States, which they probably didn’t plan to do anyway.
More important, Chinese Internet attacks won’t diminish as a result of these charges. If the White House was serious about retaliating against China for its hacking and about truly protecting U.S. intellectual property, it would make a formal case to the WTO protesting China’s policies that force U.S. and other foreign companies to transfer technology as a condition of entrance to the Chinese market. Then it would lock the Chinese corporate recipients of purloined data out of the U.S. market. That it has not done so means that this is a charge without a punishment.
The United States might do better to play the game everyone else is playing. I know from my own experience that U.S. intelligence agencies discover quite a lot of economically valuable information. It would be an easy step to start handing that information over. Even more powerful would be to focus some intelligence efforts on helping U.S. companies maintain their advantage.
The days when America could ignore the importance of using intelligence to keep the country economically competitive are rapidly coming to a close.