It's time to take on Chinese economic espionage
Beijing's IP theft costs the American economy billions.
Hello all, and greetings from beautiful Sioux Falls, South Dakota! Believe it or not I left a rainy, cold, dreary D.C. for 70 degrees and sunny in the Dakotas of all places. I write to you from Remedy Brewing Co. which has some great beer, so check it out if you ever find yourselves in these parts.
Anyway, I’ve got some time to burn so I thought I’d touch on a topic that holds a special place in my heart: Chinese economic espionage. Rewind to 2013. The Arab Spring promises to bring democracy to the Middle East (lol). The Obama administration is in full “Russia Reset” mode (bigger lol). And I’m in my second year of grad school desperately trying to figure out a topic for the most important paper I’m going to write in my life.
Despite having spent most of my academic career as a Middle Eastern specialist, I decided to turn on a dime at the last minute to write about how China is stealing American intellectual property to the tune of something like $200B per year. If that number sounds crazy, what’s even crazier is this is just an estimate. We don’t really know how much Chinese economic espionage costs our economy, and we still don’t 12 years after I defended my thesis.
Today, China’s rampant theft of intellectual property and straight up copycat products are a punchline. But in 2013, American policymakers were only starting to recognize China as the existential threat it is, while others were distracted by ongoing conflicts in the Middle East. Some were still convinced that free trade and globalization would eventually liberalize China over time.
Nevertheless, I thought it was completely insane that we had no idea idea how much we were losing to Chinese theft. Worse yet, it appeared our policymakers had no plan to address it.
Fast forward to today, and we’re clearly embroiled in a full on trade war with Beijing. Best estimates say that we lose $200-600 billion a year due to Chinese economic espionage alone. So why do we still not know the exact figure?
I believe there are two reasons. First, admitting the problem could be bad for business. Corporations aren’t stupid. They know the risks of doing business with the Chinese. But admitting that intellectual property was stolen by their Chinese partners would be very bad for stock prices and might draw uncomfortable questions from the board. They also run the risk of government agencies prying into their affairs and opening themselves up to legal trouble.
Second, it’s practically impossible to determine an actual figure. Aside from the theft of the IP itself, there are second and third order effects that are hard to quantify. For example, let’s say the Widget Company has its IP stolen by China, which then shares this information with a Chinese competitor. You might be able to quantify this figure, but that’s just the start. Widget Company may then have to lay off employees. The loss of market share may also force Widget Company to cut expenses and cease doing businesses with its suppliers. If Widget Company is public, stock prices might plummet which also impacts portfolios and retirement accounts of many people. Extrapolate this example across thousands of businesses and dozens of sectors and you can see we have a real problem.
Solving this problem starts by admitting it exists. Thankfully, business leaders are becoming more comfortable acknowledging there’s an issue. For example, business mogul Kevin O’Leary, aka Mr. Wonderful, recently came out guns blazing against China’s duplicitous business practices.
“They cheat, they steal, they don’t play by the rules. And I’ve had enough. And so I would like this thing worked out. I don’t care about the volatility. I don’t care if Trump ratchets it up 25% a day,” O’Leary told MSNBC host Jose Diaz-Balart during a recent interview.
“Because we have to fix this problem once and for all. It’s killing us. It’s killing small business in America. It’s killing large businesses. All the IP these guys steal. You go back and look at all of their technological advancements, and this is my personal estimation, you’re going to find source code from American companies back four decades ago.”
I couldn’t have a said it better myself.
Here’s the bottom line: we’ve been in a trade war with China for at least 24 years, we just haven’t admitted it until now. China has been systematically robbing us of our economic prowess in an attempt to permanently supplant our economy. Certain midwits will tell you this is actually a good thing because China’s economic duplicity means cheaper goods for Americans, who are the designers of the goods China makes. But here’s the thing: China has made it evidently clear they have bigger ambitions than simply being the world’s factory for the rest of time. Programs like Thousand Talents and Made in China 2025 are designed to eventually create a situation where China controls both manufacturing and IP development. In that scenario, the U.S. has no leverage and loses the New Cold War.
But before we tackle the big issues, we need to start with the IP theft problem. First, we need to encourage American companies to work with the government to counter Chinese economic espionage by creating an environment which lowers their risk profile. Once the government understands the problem, it can then target China’s bad actors. This is something for which AI could be particularly useful. Second, we need to begin implementing policy solutions based on the excellent work done by Congress’ Select Committee on the Chinese Communist Party. This initiative has exposed the CCP for what it is and it’s efforts must be bolstered. Finally, we need to secure critical supply lines by reshoring certain segments of our manufacturing sector including chip foundries, weapons components, and rare earth refineries. The U.S. got a taste of what it’s like to not have access to certain critical goods during the COVID-19 pandemic—we must lower that risk exposure.
As always, thanks for reading. Keep an eye out for more on the trade war topic soon.
P.S.: Here’s a PDF link to my thesis I mentioned earlier if you really want to get into the weeds.
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