Manufacture This

The blog of the Alliance for American Manufacturing

About $300 billion annually, a new report finds.

There’s a whole lot going on in D.C. this week, including the mystery over who exactly wrote that op-ed in The New York Times. You know who might know?

China.

O.K., I kid – but maybe not really.

It’s not a secret that China is engaging in massive cyber espionage against the United States, and a new report from the Foundation for Defense of Democracies highlights some of the consequences.

The findings are astounding. China is responsible for 50 to 80 percent of cross-border intellectual property theft worldwide, and more than 90 percent of all cyber-enabled economic espionage in the United States.

All that cyber theft costs the U.S. economy up to $300 billion annually, according to report author Zach Cooper. The damage adds up to more than just dollars and cents:

“Chinese espionage has not only damaged U.S. companies, but has also helped China save on research and development expenses while catching up in several critical industries… Perhaps most worryingly, China is reversing many of the U.S. military’s technical and industrial advantages and creating potential vulnerabilities should a conflict arise.”

The foundation also notes that China has “demonstrated a willingness to use cyber attacks as a tool of economic coercion to pressure governments and private companies to change their policies.”

Here’s more from the report:

“By advantaging Chinese enterprises at the expense of competitors from the United States and its allies and partners, these attacks cumulatively degrade U.S. national security. This cyber campaign is an integral part of China’s broader security strategy and has undermined both American prosperity and security.”

Cooper further warns that Chinese espionage has “not garnered the public attention warranted by its severity” and writes that a “sustained campaign to demonstrate to Beijing that its malicious cyber activities will impair U.S.-China relations is likely the only way to convince the Chinese Communist party to alter its behavior.”

The report includes a number of recommendations on how best to tackle China espionage, and encourages the Trump administration and Congress to “work together to demonstrate to China that the status quo cannot continue.”

One thing that is very clear: China isn’t going to change unless it feels significant pressure to do so.

Back in 2015, then-President Barack Obama stood alongside Chinese President Xi Jinping at the White House and announced the two nations had reached a deal on cyber issues, agreeing that “neither the U.S. or the Chinese government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or confidential business information for commercial advantage.”

At first, it appeared  there was some progress. As Cooper notes, cyber security experts detected fewer cyber intrusions from China in the months after the deal was announced.

But unfortunately, Chinese espionage overall continues – and some even wonder if the Chinese have just gotten better at hiding it, Cooper writes.

And now Donald Trump is president, and he is driving a harder (albeit more chaotic) bargain.

Although The Donald’s trade rhetoric dominates much of the discussion about his relationship with China, it’s important to remember that China’s cyber espionage was among the chief reasons why the United States issued a 25 percent tariff on $50 billion worth of Chinese goods back in June. The Chinese products targeted by that set of tariffs had benefited from intellectual property theft at the expense of American companies, according to the U.S. Trade Representative.

Only time will tell whether Trump’s strategy will work. The tariffs are potentially the best leverage we’ve had with China in years, and there’s growing evidence that China is feeling the pain.

But even those who disagree with Trump’s current trade moves would be wise to remember that unless China faces consequences for its actions, nothing will change. And as this latest report shows us, the United States can no longer afford to ignore this problem.