Donald Trump made some questionable remarks this week that have rightly caused an almighty backlash. But one thing he did that may have more support, is sign an executive memorandum which will most likely lead to a lengthy investigation into alleged widespread Chinese theft of US IP. This is a big deal in Silicon Valley and something that has irked US business in general for years.
The question is, will this latest strategy actually result in any concrete changes on the Chinese side? As you can see from this new IDG Connect piece, I’m not convinced.
Years of theft
There are few things Democrats and Republicans agree on, but one is that China has had things far too long its own way when it comes to trade. The US trade deficit between the countries grew to $310 billion last year, helped by the growing dominance of Chinese businesses. Many of these have been able to accelerate their growth and maturation thanks to IP either stolen by hackers from US counterparts or take via forced joint ventures and tech transfers. Many of them are selling back into the US or their huge domestic market, undercutting American rivals.
Chinese firms don’t have the same restrictions around forced JVs and tech transfers to enter the US market. In fact, the likes of Baidu even have Silicon Valley R&D centres where they’re able to recruit some of the brightest locals, while government-backed VC firms have been funding start-ups to continue the seemingly relentless one-way IP transfer.
There are, of course, more nuances to the dynamic, but you get the point.
So, will this investigation get us anywhere? After all, it will empower the President to take unilateral action including sanctions and trade embargoes. Well, on the one hand, little gain can be made from stopping Chinese IP hackers, as they have stopped outright theft ever since a landmark Obama-Xi deal in 2015, according to FireEye Chief Intelligence Strategist, Christopher Porter.
“If anything, discontinuing straightforward theft of intellectual property for strictly commercial purposes has freed up Chinese actors to focus more on these other targets than ever before, so the risk to companies before and after the Xi Agreement depends heavily on what industry that company is in and what sort of customer data they collect,” he told me via email.
That’s not to say the Chinese aren’t still active in cyberspace, but it’s less around IP theft, which is the focus of this investigation, Porter added.
“We have seen an increase in cyber threat activity that could be Chinese groups collecting competitive business intelligence on US firms selling their products and services globally—several companies that were targets of proposed M&A activity from would-be Chinese parent companies were also victims of Chinese cyber threat activity within the previous year, suggesting that they may have been targeted as part of the M&A process to give the Chinese company a leg-up in negotiations,” he explained.
Which leaves us with JVs and tech transfers, which have provided Chinese companies with vital “know-how” and “know-why” over the years. To my mind, if there’s any area where the US can and should focus its diplomatic and negotiating efforts, it’s here. However, as reports in the past have highlighted, it took China years to construct a gargantuan, highly sophisticated tech transfer apparatus, and it won’t be looking to bin that anytime soon, especially with the Party’s ambitious Made in China 2025 strategy now in full swing.
Neither side will want to become embroiled in a trade war. The US has too many companies which count China as a major market – it’s Apple’s largest outside the US, for example – and Chinese firms are doing very well selling into the US, as that huge trade deficit highlights.
In the end, my suspicion is that this is just another bit of Trump tough talk which will actually produce very little.
“This long-awaited intervention should also probably be viewed in the larger picture of the way the Trump administration operates: in terms of ‘carrot and stick diplomacy’,” Trend Micro European Cyber Security Strategist, Simon Edwards, told me.
“It is also well documented that the US administration is trying to use trade deals to get action on the situation in North Korea; and perhaps this is more of a stick to be used with the accompanying ‘carrot’ of a greater trade deals?”
Time will tell, but it’s unlikely that US tech companies operating in China, and their global customers, will be any better off after this latest test.
As the dust settles on Donald Trump’s extraordinary ascent to the White House, what do we know of his plans for cybersecurity? I’ve been speaking to a variety of experts for an upcoming Infosecurity Magazine feature and, believe it or not, the majority are not particularly optimistic of the future.
His official website, outlining the Trump ‘vision’ for cybersecurity, focuses on some easy wins:
- An immediate review of critical infrastructure and federal cyber “defences and vulnerabilities” by a Cyber Review Team comprised of members of the military, law enforcement and private sector
- The same team to establish “protocols and mandatory awareness training” for all federal employees
- DoJ to create Joint Task Forces to co-ordinate federal, state and local law enforcement cybersecurity responses
- Defence secretary to make recommendations on enhancing US Cyber Command
- Development of offensive cyber capabilities
Doug Henkin, litigation partner at Baker Botts, said the focus on awareness raising is a positive.
“This appears to be a good development for setting a positive tone to lead from above with respect to best practices for protecting against cybersecurity threats and is also essential for corporations seeking to ensure good cybersecurity preparedness,” he argued.
“It is essential to increase training as the new administration has recognised, while also remaining vigilant to how cyber attacks occur.”
That’s pretty much where the good news ends.
It might be too early to judge president-elect Trump on his cybersecurity credentials. But it must be remembered that, despite his bluster over ‘Crooked Hillary’ and her email blunder, his businesses were found to be a whole lot worse when it comes to security. Independent researcher Kevin Beaumont scanned publicly available records last month and found many of Trump organizations’ messaging servers are running the no-longer supported Windows Server 2003 and Internet Information Server (IIS) 6. He also found 2FA unsupported, meaning user accounts are vulnerable to password phishing or brute force attacks.
What’s more, as a briefing document from think tank the Information Technology and Innovation Foundation (ITIF) tells us, Trump has promised in the past to apply tariffs against China if it “fails to stop illegal activities” and to “adopt a zero tolerance policy on intellectual property theft.”
Given what we know about China, this is a dangerous game to play. Beijing will continue to pretend it is abiding by the agreement between presidents Obama and Xi to stop state-sponsored economic cybercrime. And that could lead to heavy reciprocal penalties on US tech firms in China, such as Apple. The state-backed Global Times has already warned China will adopt a tit-for-tat approach if Trump plays it tough.
Silicon Valley scares
Trump’s election is also a disaster for Silicon Valley. The former reality TV star has expressed support in the past for the FBI’s stance in trying to force Apple into building a backdoor to unlock the San Bernardino shooter’s phone. He even called for a ban on Apple products in response to the firm’s refusal to do so. We can therefore expect more pressure on them to undermine encryption, which would be a disaster for businesses and consumers everywhere, as well as the American tech firms themselves.
As if that weren’t enough, he’s also a big fan of the Patriot Act and will inherit a fearsome surveillance apparatus from Obama. The Democrat is already being blamed for failing to overhaul the huge encroachment on civil liberties enacted by the Bush administration. Writing in the Guardian, Freedom of the Press Foundation executive director, Trevor Timm, had this:
“What horrors are in store for us during the reign of President Trump is anyone’s guess, but he will have all the tools at his disposal to wreak havoc on our rights here at home and countless lives of those abroad. We should have seen this coming, and we should have put in place the safeguards to limit the damage.”
Let’s hope he surprises us all.