One of the key provisions in the recently announced “phase one” trade deal with China is the ability for the U.S. to retaliate unilaterally if the dictatorship in Beijing violates any part of it, White House Director of Trade and Manufacturing Policy Peter Navarro told Fox News this past Sunday.
Those are fighting words from Navarro, and for good reason. For years, Beijing has been waging economic war against the United States with the theft of trade secrets and technology, and engagement in other acts of espionage that have drained the U.S. of billions of dollars and tens of thousands of jobs. Much of it has gone unnoticed in the United States because as U.S. Attorney David Freed, who warned businesses of the threat at a recent PMA Monthly Business Briefing, stated it’s been done “under the veneer of legitimacy.”
“We want to do business all over the world, but with China always with a healthy dose of skepticism and suspicion,” Freed said in a follow-up phone conversation, commenting on how the Trump Administration has made stripping back the veneer and confronting the crisis a priority.
A year ago, the Department of Justice, the FBI, the Department of State, and other federal agencies announced a coordinated effort to combat the threat from China. This particular joint effort is one that goes beyond the dumping of steel, the manipulation of currency, and other trade violations. It’s a wholesale offensive front, as Assistant Attorney General John Demers told the Senate Judiciary Committee last December, to eradicate the “rob, replicate, and replace” mission of the Chinese Communist Party.
“Rob the American company of its intellectual property, replicate the technology, and replace the American company in the Chinese market and, one day, the global market,” explained U.S. Attorney David Freed.
The economic aggression from China is on a scale unlike anywhere else in the world, argues PMA President & CEO David N. Taylor, who, along with other manufacturing leaders, has been sounding the alarm about China’s predatory trade practices and systematic industrial espionage for years.
“When you realize that 80 percent of economic espionage prosecutions by the United States have alleged conduct that would benefit the Chinese, and 60 percent of trade secret theft cases have some connection to China, you can finally recognize Beijing’s master plan to steal its way to replace the U.S. as the world’s top economic and military power,” Taylor said.
In Pennsylvania, the most vulnerable industries/technologies include university research centers, biotechnology, and energy industries, Freed said, but warned businesses of all sizes are vulnerable.
“The threat could be cyber, inside theft, or through joint ventures and other partnerships,” he said.
For example, a year ago the United States charged a Chinese state-owned enterprise, along with a Taiwan-based company and three Taiwanese nationals, with conspiracy to trade secrets from U.S. semiconductor maker Micron Technology. The Idaho-based firm controls about 20% to 25% of the market for dynamic random-access memory (DRAM) chips, a technology China did not have until recently.
“Then to add insult to injury, the company that stole and is working to clone the legitimate American product turned around and sued the American company for violating its patents rights — which were built on the stolen technology,” Demers told the Voice of America (VOA).
Within the year, Micron lost nearly half its market value as DRAM chips flooded the market.
In another example, the Justice Department in January charged Huawei Technologies, the Chinese telecom giant, with numerous federal crimes, including stealing trade secrets from wireless provider T-Mobile. The U.S. has threatened to ban all the company’s products. Recently, the Federal Communications Commission banned Huawei from its Universal Service Fund.
In April, the VOA reported that Xiaoqing Zheng, a U.S. citizen of Chinese descent, and Zhaoxi Zhang, a 47-year-old Chinese national, were charged with conspiracy to steal turbine technology secrets from General Electric. The two allegedly received financial support from the Chinese government and had inked research agreements with state owned institutions in China to develop turbine technology.
Prosecutions, according to Freed, are essential even if those indicted can’t be extradited to face justice.
“It’s important to get the story out there,” Freed said, “to show how they operate and to hold them accountable.
Officials say that without a coordinated pushback from the U.S., the theft and undermining of American businesses will only grow, especially in light of the “Made in China 2025” plan, a campaign by the Chinese government to evolve from being the world’s cheap labor factory to be the center of producing higher value products and goods.
The Council on Foreign Relations, a Washington-based think tank, called the plan”a real existential threat to U.S. technological leadership.”
National Economic Council Director Larry Kudlow said on CNBC late last week that ensuring that China lives up to the latest trade agreement is a top priority.
“Regarding intellectual property rights, there’s a section in that chapter that would prevent the kind of counterfeiting among tradable goods that has been going on for years, that is clearly an unfair trading practice…there’s a section, also in the IP area, that says plainly that if an American company is going for a license to do business, that any forced technology transfers will not be used by the Chinese. We will test those propositions.”