(What’s Left of) Our Economy: Intel – & Often China – Inside Your Hackable Electronics

Tags

China, computers, counterfeits, cyber-security, Defense Department, electronics, globalization, hacking, Intel, microchips, semiconductors, smart phones, technology, Trade, {What's Left of) Our Economy

OK, who out there has an electronic device like a computer or a smartphone? I thought so. And who uses them like…nearly all the time? And engages in lots of financially or personally sensitive activity on-line? Thought so again. And you no doubt weren’t thrilled to find out yesterday that the computer chips vital to the operations of virtually all of these devices have some big security flaws that make them eminently hackable.

Well, here’s worse news: There’s an excellent chance that the hackers could be working for the Chinese government. And for that, you can thank decades of stupefyingly boneheaded American trade and globalization policies.

I can’t tell you how excellent the chances are, because one of the completely unnecessary failures of these policies has been pre-Trump Washington’s complete lack of interest, from either major political party, in tracking and letting the American public know how dependent they and their economy have become on products from potentially dangerous countries.

But I feel confident in claiming that the chances are at least pretty excellent. The reason? Private sector specialists have published detailed studies on subjects like the Chinese electronics industry. Thanks to them, it’s well established that, although China has yet to become a top global player in manufacturing semiconductors, and especially cutting-edge microchips, it’s a powerhouse in what’s known as “back end” semiconductor production – relatively low-tech phases of the process that involve activities like packaging, assembling, and testing.

So many U.S. and other non-Chinese information technology companies do so much of this activity in China that, according to a report from the consulting firm PwC, in 2015 (the latest available data) China-based facilities accounted for 44.6 percent of total global revenues from these back end operations. That’s up from just 20.3 percent in 2009. In other words, Chinese employees of these companies have ample opportunity to insert all sorts of bugs in them, and these opportunities have been growing rapidly.

Think I’m paranoid? Or just anti-Chinese? Then you need to learn that the Defense Department had admitted that, over a recent two-year period, its weapons systems had been studded with some 1 million counterfeit electronics parts and components – some 70 percent traceable to China. DoD now claims it’s solved much of the problem with a “trusted supplier” program. But good luck reliably inspecting the gargantuan Chinese electronics production complex over any serious length of time.

Longstanding American trade and globalization policies deserve most of the blame because, through priorities like indiscriminately expanding U.S. commerce with and export-oriented investment in China, they actively encouraged much of the world’s electronics industry to migrate to the People’s Republic.

The world’s current Number Two semiconductor producer, likes to tout “Intel Inside” a huge share of the world’s electronics devices. Maybe it, and others, should start to advertise “China Inside”?

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Im-Politic: Initial Thoughts on the Trump Wars

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2016 election, Andrew McCabe, Director of National Intelligence, FBI, hacking, Hillary Clinton, Im-Politic, impeachment, intelligence community, James Clapper, James Comey, John McCain, Justice Department, Lindsey Graham, Loretta Lynch, Michael T. Flynn, Richard M. Nixon, Russia, Russiagate, Sally Yates, The New York Times, The Washington Post, Trump, Wategate

Since I’m not a Trump or intelligence community insider, I’ve refrained from posting any items on the last crisis that began surrounding the administration starting with the president’s firing of James Comey as FBI Director. (I have commented on some aspects briefly on Twitter.) But since I’m a strong supporter of many positions championed by Mr. Trump both during the campaign and – to a lesser extent – in the White House, I thought that RealityChek readers would be interested in some observations about aspects of the uproar that deserve more consideration.

First and most important: Both current and former officials in the federal bureaucracy and even the intelligence community clearly hope to end the Trump presidency, and have decided to leak to the equally anti-Trump Mainstream Media even the most highly classified material if it’s judged to be potentially harmful to the president. Yet no leaks have revealed any evidence supporting the central allegation against the president: the charge that he or close aides colluded in any way with Russian efforts to fix the presidential election in his favor.

Given that the president’s foes long viewed the prospect of his victory with alarm, and given that they have sought to de-legitimize this victory since it unfolded the evening of last November 8, the absence of such a smoking gun after so many months is absolutely startling. If this evidence exists, what are President Trump’s adversaries waiting for?

P.S. – this argument pertains to retired General Michael T. Flynn, who advised candidate Trump and briefly became his White House national security adviser. Flynn has certainly acted in several instances like he’s had something (or things) to hide. But he’s been tracked for months by intelligence officials who – again – have been anything but reluctant to make troubling findings public. And nothing has emerged pointing to working with Russia to undermine the campaign of Democratic nominee Hillary Clinton.

One possible explanation? Many anti-Trump-ers are waiting for the 2018 mid-term elections to get closer and closer, in order to boost the chances of a Democratic landslide before the administration had a chance to rebut the charges conclusively – and before Congressional Republicans have a chance to dissociate themselves from Mr. Trump. And maybe they’re being joined by some establishment Republicans, who hope to recapture their party from the Trump-ist forces. And maybe both factions are motivated mainly by the belief that Mr. Trump is such an unprecedented danger to the republic that any means are warranted to remove him from the Oval Office.

If so, however, some big legal issues pop up.  For instance:  Are individuals privy to information about crimes – and in fact major crimes – withholding them from law enforcement authorities? 

Second: Not only has no evidence of collusion been leaked. The former head of the entire intelligence community has just made clear that, during his own prolonged probe of Russia’s efforts to interfere with the election (a related but clearly separate issue, for which strong evidence exists), he saw none.

In March, James Clapper, who resigned as Director of National Intelligence soon after the election, had tantalizingly hinted at the existence of such material by telling a reporter that the intelligence community “did not include any evidence” in its January report on the Russian campaign “that had anything, that had any reflection of collusion between members of the Trump campaign and the Russians. There was no evidence of that included in our report.”

But when pressed by “Meet the Press” anchor Chuck Todd to confirm whether such evidence existed, Clapper responded, “Not to my knowledge.” And when asked under oath in Senate testimony on three months later whether that statement was still accurate, Clapper stated, “It is.” In other words, Clapper’s probe, which reflected the work of 16 intelligence agencies including his own Director’s office uncovered no collusion evidence.

The issue was briefly muddied during that same hearing by former Deputy Attorney General Sally Yates. Like Clapper, an Obama administration appointee to her latest position, Yates initially answered the question about collusion by demurring. She explained that her “answer to that question would require me to reveal classified information. And so, I — I can’t answer that.”

As noted by questioner Senator Lindsey Graham – no admirer of President Trump – the FBI that Yates helped supervise as the second-in-command at the Justice Department was part of Clapper’s Russia investigation. After Yates indicated that the FBI was conducting its own separate counter-intelligence inquiry into Russia’s activities, Graham asked Clapper if the evidence found by the Bureau at that time “was not mature enough” to justify including in the broader intelligence community report.

Responded Clapper: “[T]he evidence, if there was any, didn’t reach the evidentiary bar in terms of the level of confidence that we were striving for in that intelligence community assessment.”

So again, a protracted look into Russia’s Election 2016 hacking produced no evidence of collusion that the intelligence community as a whole believed was solid enough to justify even hinting at in its publicly stated conclusions.

Third: One highly damaging allegation that’s been made over the last week was the Washington Post‘s claim that Comey requested more resources from the Justice Department for his investigation just before he was fired. The clear implication: The president became convinced that Comey was ramping up his investigation – which began in July – and decided to fire him in order to deny him the funds needed to do the job adequately. Such an action, of course, would at least strongly resemble obstruction of justice.

This article, however, too, looks fishy. Post reporter Ashley Parker did include an on-the-record flat Justice Department denial, but needless to say, government spokespersons lie or dissemble all the time. Much more difficult to dismiss: Acting FBI Director Andrew McCabe – who had been Comey’s former top deputy – stated in his own sworn testimony to Congress that he was unaware of any such request.

Yes, it’s true that Comey might have made the request without telling McCabe. But how much sense does that make? Nor can anyone accuse McCabe of being a Trump toady. His wife, Jill, had run for office in 2015 as a Democrat and had accepted $500,000 in campaign contributions from the political organization of a long-time Clinton family ally, Virginia Governor Terry McAuliffe.

Finally (for now!), comes the subject, as reported in The New York Times, of Comey’s alleged memo claiming that President Trump asked him to drop his Russia investigation in a February meeting. The former FBI Director will surely have the chance to confirm, deny, or otherwise elaborate on this story and the conversation in his own testimony under oath to Congress.

As suggested by prominent Trump critic Republican Senator John McCain of Arizona, if this request was made, we’re talking about a genuinely Nixonian case of obstruction of justice. (The “smoking gun” tape that played such a decisive role in Richard Nixon’s impeachment and removal in 1974 centered precisely on a decision by the former President to order the FBI to stop its Watergate investigation.)

As Mr. Trump’s critics like to say, however, the Times article “raises questions” – indeed, big ones. First, it’s crucial to note that, as Nixon himself admitted, his actions were intended to cover up criminal activity. As noted above, there’s no evidence yet of a Russia-related crime committed by the Trump administration.

More immediately, Comey has not exactly been shy about loudly expressing, acting on, and widely sharing his concerns about obstacles to official inquests and other behavior he considered improper. In 2004, he threatened to resign as Deputy Attorney General over post-September 11 domestic surveillance programs he viewed as illegal. Last July, he famously held a press conference in which he took the extraordinary step of moving beyond his position’s investigative role to explain extensively his decision to recommend against indicting Hillary Clinton for using a personal email system as Secretary of State. And earlier this month, Comey said – again, under oath – that he took this step because he unilaterally decided that his superior, Attorney General Loretta Lynch had lost credibility as a Clinton investigator because of her meeting with the candidate’s husband, former President Bill Clinton, in June.

It’s certainly possible that Comey has decided to keep firsthand evidence of clear Trump criminality under wraps for going on three months now. But it sure looks out of character.

All of the above notwithstanding, there’s no question that the President’s undisciplined and often contradictory statements understandably have created major suspicions – which are by no means confined to his enemies’ ranks. The consequently confused efforts by his surrogates to clean up these messes have only compounded the problem. And even if the administration had its communications act together, one indisputable lesson of Washington and other scandals is that shoes keep dropping. Moreover, numerous continuing global business ties and burgeoning official responsibilities of the President’s children, his son-in-law Jared Kushner, and his family keep failing valid smell tests.

At the same time, the clearly organized Dump Trump effort by numerous persons with detailed knowledge of seemingly the full range of the federal government’s most sensitive activities suggests that “RussiaGate,” at least, could be different. Not in the sense that damaging claims won’t continue to be made, but in the sense that the anti-Trump-ers might have already leaked their worst.

The only certainty at this point appears to be that the various Trump Wars will rage on for months at a minimum – which means that the valid policy grievances of the president’s supporters and so many other Americans will continue to be neglected by their government.

Our So-Called Foreign Policy: Sense and Nonsense on Russia’s Hacking

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2016 election, Amy Klochubar, China, cyber-security, cyber-war, defense spending, Democrats, hacking, Hillary Clinton, intelligence, John McCain, Middle East, NATO, Obama, Office of Personnel Management, Our So-Called Foreign Policy, Putin, Republicans, Russia, sanctions, terrorism, Trump

What could be more predictable? The growing uproar over charges that Russia’s government waged a cyber-focused disinformation campaign to influence the last U.S. presidential election has let loose a flood of positively inane statements and arguments on both sides that show politics at its absolute worst.

Even worse, unless both Democrats and Republicans – and the various conflicting camps within the two major parties – get their act together quickly, the odds of further attacks and all the damage they can cause to American governance will only keep shooting up.

Let’s start with those who have expressed skepticism about these allegations, including regarding the substance of yesterday’s intelligence community report concluding that “President Putin ordered an influence campaign in 2016 aimed at the US presidential election. Russia’s goals were to undermine confidence in the democratic process, denigrate [former] Secretary [of State Hillary] Clinton [the Democratic nominee], and harm her electability and potential presidency.”

Can they really be serious in contending that the intelligence agencies’ publicly expressed judgments don’t pass the credibility test because no smoking gun or any other compelling evidence has been published? Do they really want the CIA etc to reveal whatever human and technical sources and methods they rely on? Do they really believe that any effective counter-hacking strategy can be developed or continued after disclosing that information?

The insistence on definitive proof, moreover, amounts to terrible advice for making foreign and national security policy generally. It seeks to apply to the jungle realm of international affairs the standards of the American legal system. President Obama’s years in office should have taught Americans how dangerously childish it is to believe that relations among sovereign countries are governed by commonly agreed on rules and norms, that the world is on the verge of this beatific state of affairs, or even that significant progress is being made. And Americans should hold shadowy world of spying and counter-spying to a simon-pure standard?

A more defensible rationale for doubting the intelligence community’s work emphasizes its past major blunders. And from what’s been made public, they have indeed been all too common and all too troubling.  (Please keep in mind, though, that successes often cannot be made public.)

Nevertheless, if a president or president-elect has no faith in a high confidence judgment of this importance from his intelligence agencies, then it’s clearly time to clean house. If the next administration does indeed decisively reject the community’s work on this matter, it will have no legitimate choice but to replace it leaders.

Back to the genuinely ditzy positions: statements that the Russian hacking failed to influence the course of the election. I personally believe this, and shame on those partisans who keep insisting that this interference prevented former Secretary of State Hillary Clinton from winning the White House or that it delegitimizes to any extent Donald Trump’s victory.

But should the United States count on Moscow – or any other actor – continuing to fail? Should it wait to respond forcefully until a U.S. adversary succeeds? Shouldn’t Washington capitalize on its adversaries’ current evident shortcomings in this regard and focus on punishment and deterrence? Simply posing these questions should make clear how obvious the answers are.

A final major objection to hammering the Russians represents another more reasonable judgment call, but it’s still fatally flawed. It’s the argument that Washington needs to softpedal the hack attack because the United States has a vital interest in improving relations with Moscow.

As I’ve written, opportunities for better ties with Russia abound, and they should be pursued. But that’s no reason to let Moscow off lightly for its cyber-aggression. In the first place, in any mutually beneficial relationship, boundaries need to be drawn. This is especially true given how much stronger and wealthier than Russia the United States is. If an effort to subvert America’s democratic processes doesn’t qualify, count on further, even worse provocations by Moscow.

Just as important, this approach overlooks a crucial reality: Clear indications that Russia has an incentive to cooperate with the United States in fighting Islamic extremism and terrorism haven’t appeared because Moscow is in a charitable, or even helpful, mood. They’ve appeared because these are vital interests as well for Russia, which both borders the dysfunctional Middle East and rules over its own Muslim populations.

In other words, Moscow has plenty of incentive to play ball with Washington on the Middle East whether the United States retaliates sharply for the hacking or not. And if the Russians don’t understand that, then there’s little hope of any form of meaningful cooperation.

Yet the actual and potential inconsistencies and hypocrisies of those urging tough retaliatory measures are equally troubling. Some are exclusive to Democrats. For example, the sanctions imposed on Moscow by the Obama administration for the hacking seem pretty modest for actions that it claims “demonstrated a significant escalation” of Russia’s “longstanding” efforts “to undermine the US-led liberal democratic order.”

And at the same time, the outrage voiced at Moscow contrasts conspicuously with reactions to China’s successful attack on the federal Office of Personnel Management, in which the records of some 22 million U.S. government employees – including classified and confidential information – were compromised. Indeed, President Obama never publicly blamed China’s government nor announced any responses.

Most important, however, is the question of whether Russia hardliners in both major parties old and new will act on the logical implications of their views of Russian actions and intentions – including on Moscow’s efforts to expand its influence along its own European borders. If for instance the hacking, as per Arizona Republican Senator John McCain, is truly an “act of war,” then will the call go out to cut off economic and diplomatic relations with Moscow?

If Russia’s moves against Crimea or Ukraine or the Baltics mean, in the words of Minnesota liberal Democratic Senator Amy Klochubar, that “Our commitment to NATO is more important than ever,” will today’s hawks – especially the noveau liberal variety – call for more U.S. defense spending and bigger American military deployments in endangered countries? And will they demand that American treaty allies in Europe finally get serious collectively about contributing to the common defense – which is first and foremost their own defense?

The answers to these questions will speak volumes to the American people as to whether their government is truly determined to defend interests declared to be major against foreign threats. And you can be sure they’ll convey the same vital information to America’s foreign friends and foes, too.

Following Up: How Intel May Wind Up Inside China’s Military

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China, cyber-security, Digitimes, Following Up, hacking, Intel, multinational corporations, national security, Obama, Office of Personnel Management, South China Sea, technology transfer, The New York Times, The Wall Street Journal

China keeps challenging American security interests, notably by staging damaging cyber attacks on key U.S. strategic and commercial targets, and by asserting territorial claims in Asian waters that could threaten global shipping and air traffic. And evidence keeps pouring in of U.S. technology companies showering China with valuable capital and defense-related know-how – and of a decided “What, me worry?” attitude taken by the Obama administration.

Last week, a post of mine summarized two recent New York Times articles reporting the beginnings of some concerns in the national security community about these dangerous corporate activities, along with a Wall Street Journal piece that summarized some especially troubling recent tie-ups involving entities part of or clearly controlled by the Chinese government.

This week, the Taiwanese publication Digitimes shed major new light on the American tech sector’s role in beefing up China’s capabilities in a piece focusing on Intel’s operations. According to Digitimes, by the end of this year, the world’s biggest semiconductor company will have committed nearly $1.80 billion to helping Chinese companies develop advanced new products and services. Just as alarming as the scale of this investment are some of the specific recipients.

Digitimes correspondents Monica Chen and Joseph Tsai report that the company now owns part of a Hong Kong company that makes unmanned aerial vehicles, and parts of firms in China proper involved in smart devices, robotics, cloud computing services, artificial intelligence, machine vision, three-dimensional modeling, virtual reality technologies, and advanced optics.

Every single one of these investments could easily find its way into Chinese weapons – which could easily wind up using them against the American military. But although tensions in the South China Sea may be rising, and the files of tens of millions of federal employees may have been hacked earlier this year, don’t tell any of Intel’s top executives or anyone making China policy for President Obama. For them, it’s clearly business as usual with Beijing.

Following Up: Defense-Related Tech Keeps Flowing to China While Obama Fiddles

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China, cyber-security, Defense Department, Following Up, forced technology transfer, hacking, IBM, Obama, technology, The New York Times

It’s great to report that at least some of the Mainstream Media’s biggest guns are finally waking up to the dangers posed to U.S. national security by decades of the nation’s most advanced and militarily-relevant know-how being transferred to China by many of America’s leading technology companies. (The main examples can be seen here, here, and here.) Less great is having to report that the Obama administration still too often seems asleep at the switch.

Let me start with a little personal story. Thirteen years ago, while visiting IBM’s software-research lab in Beijing, I observed dozens of Chinese employees moving about seemingly free of any security-related limitations. I asked the lab’s manager two questions – and told him his answers would be on the record, for attribution for an article I was thinking of writing. He confidently assured me that would be OK.

The questions were: “Do you have any way of knowing whether any of your Chinese staff is also working for the Chinese government?” and “Do you have any way of knowing whether any of your Chinese staff is a spy?” The manager unhesitatingly answered “No” to both. He hastily added, “But you can be sure that we at IBM work very hard to protect our core intellectual property.” I responded, “I think you at IBM would turn cartwheels trying to make the Chinese government happy and keep it as a customer,” and he declined to comment.

But the story didn’t quite end there. The next day, the lab manager called me and let me know that he had changed his mind about his answers being on the record. I told him that’s not the way it works in journalism when the ground rules have been set in advance, but offered to negotiate with him in exchange for further info from him. When he waxed indignant about ungentlemanly behavior, I wished him a good day – but never felt compelled to use his name, and possibly ruin his career.

And a few weeks later, when I mentioned this incident to U.S. officials in China, they noted that the resources at their disposal for monitoring the tech transfer situation in the People’s Republic were hopelessly inadequate.

Thirteen years later, the situation looks far worse. As I detailed in a 2013 Bloomberg article, U.S. tech companies spent much of the decade showering Chinese entities – all of whom have relations of some kind or another with the Chinese government – with all the knowledge they would need to set up world-class cyber-hacking operations. And more generally, China’s overall high tech prowess has burgeoned as Beijing repeatedly has extorted advanced knowhow, along with capital, from American-owned and other firms all too eager to serve their crown jewels in exchange for market access. I can’t think of any remotely comparable historical precedent for one great power so energetically strengthening the defense-related capabilities of a likely rival.

And if you think about it, U.S. tech transfer policy these days has become worse still. For during most of the time since I was in China, China was acting only like a “likely rival.” Between its recent hacking offensive and expansionism in the South China Sea, it’s now acting like an unmistakable rival.

But according to the two recent New York Times reports cited above, the Defense Department is staying mum on a new report – from a firm that government agencies rely on for “classified military analysis and intelligence” – charging that IBM’s tech partnerships with China are “endangering the national and economic security of the United States, risking the cyber-security of their customers globally, and undermining decades of U.S. nonproliferation policies regarding high-performance computing.”

Just as disturbing: The Times is no doubt right in observing that “There is nothing to suggest that the partnerships have broken American laws,” and that many aspects of IBM’s operations in China “have been vetted and approved by the United States government, which is empowered through a review process to decide whether American tech companies are giving away too much advantage to military rivals.” As one wag once cracked, what doesn’t violate the law in Washington is often more disturbing than what does.

Meanwhile, back on the hacking front specifically, the Obama administration has both been deferring to the export-happy tech industry in developing new rules for controlling the sale overseas of hardware and software for on-line surveillance, and apparently doesn’t realize that these eavesdropping-focused products are indistinguishable from those that can penetrate a wide range of critical computer and internet systems. Moreover, the focus of the administration’s new efforts seems to be out-and-out rogue states like Iran, North Korea, and Syria. Super-hacker China apparently isn’t even on the screen. (That particular Times piece didn’t give it much attention, either).

Because the Mainstream Media plays such a big role in setting official Washington’s agenda, its improved coverage of China and other tech transfer-related security issues is genuinely good news. But it’s no substitute for a government that’s genuinely, or even minimally, vigilant.

Our So-Called Foreign Policy: How to Stop China’s Maritime Expansionism

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12-mile limit, allies, Asia, asymmetric warfare, China, cyber-security, cyber-war, export-led growth, forced technology transfer, free-riding, freedom of navigation, hacking, international law, multinational companies, Our So-Called Foreign Policy, South China Sea, territorial waters, Trade, trade barriers, U.S. Navy

It’s too early to say that President Obama’s decision to use the U.S. Navy to challenge China’s expansionism in the South China Sea shows he’s grown a backbone. But maybe a vertebra or two? At the same time, it’s clear that this story is far from ended, that there may be less than meets the eye to Beijing’s apparent acquiescence in the administration’s clear dissing of Chinese unilateral claims to East Asian waters, and that the United States needs to explore new types of responses if it wants to maintain its leading position in the Asia Pacific region.

To recap, in recent years, China has put muscle behind its long-stated insistence that many of the seas to its east and south, along with various tiny islands and island chains, are Chinese territory. As with similar longstanding claims made by other Asian countries ranging from Japan and South Korea to the Philippines and Vietnam, these positions aren’t recognized by international law.

For literally decades, all of these countries generally agreed to disagree (despite testing each others’ resolve from time to time).  Yet nearly two years ago, China began upping the ante by creating large physical presences on some of the (mainly uninhabited) islands in the South China Sea, and then by literally enlarging some of the smallest ones (which are so tiny that they literally sink below the waves on a regular basis), and creating new ones through various land reclamation techniques. (Other countries have made similar efforts, but they’ve been much smaller and far more sporadic.) China has also claimed exclusive air rights over many of the disputed regions.

In addition, China has unilaterally declared sovereignty over the waters surrounding all these locations out to 12 miles – the normal allowed by international law, but a standard that doesn’t always apply to the kinds of artificial creations produced by China. Moreover, Beijing went even further, stating that foreign naval vessels needed to notify Chinese authorities whenever they wanted to enter such waters.

This decision apparently convinced Washington that China’s actions unacceptably threatened freedom of navigation in the South China Sea. That’s a huge deal, since trillions of dollars worth of U.S. and other international commerce sail through these waters annually, and since they’re rich in natural resources as well. And incidentally, all other regional powers seem to agree.

So the president finally authorized an American guided missile destroyer to sail close enough to one of the disputed islets to violate Chinese claims – and without asking permission. The administration has also made clear that the kind of mission carried out by the U.S.S. Lassen would be repeated frequently. Even better would be participation by regional allies, whose historic specialty so far has been free-riding on American defense guarantees.  But except for Japan, they don’t seem to be even actively considering such assistance, and the United States bizarrely hasn’t even officially sought it.

China has protested strongly, but don’t dismiss it as a paper tiger just yet. Despite America’s continuing military edge in East Asia, Beijing is hardly devoid of options. For instance, China could create significant military presences on some of the islands. In addition, and more worrisome, according to a tweet from China-watcher Patrick Chovanec, Beijing could escalate its cyber-attacks on American businesses and government agencies.

The United States would be hard-pressed to respond in kind, as I’ve noted, because it lacks clear-cut (and perhaps any) cyber-war superiority, and because such hacking could be much more damaging to America’s more advanced economy and society than to China’s.  And in fact, capitalizing on such disparities would be fully consistent with the notion of waging “asymmetric war” developed by Chinese strategists. 

A much better means of retaliation would be economic. China’s economy, which depends heavily on exporting, and especially to the United States, is slowing. And that growth threatens Communist Party rule because it’s hold on power has for decades depended heavily on its success in boosting living standards throughout Chinese society.

Of course, erecting major barriers to Chinese imports would be condemned, especially by offshoring interests, as shortsighted and even dangerous protectionism that could plunge the two countries, and the larger world, into a “trade war.” But as always, such warnings ignore the long-term net damage inflicted on the U.S. economy – and especially its invaluable productive sectors – by the huge expansion of bilateral commerce since the early 1990s.

They also ignore the clear message being sent by the persistence of the American recovery (however inadequate) in the face of a weakening global economy, and by the reemergence once that recovery began of overall U.S. trade deficits (including of course with China) as major drags on American growth: The United States needs the rest of the world economy even less than ever, and certainly much less than trade-dependent countries like China need the United States.

Would wielding this kind of economic stick against China be cost-free for Americans? Of course not, especially in the short- and even medium-term, before supply chains got restructured. Yet tariffs and other curbs could always be phased in. Nor need they cover all Chinese products (although the more, the merrier). And other means of economic retaliation could be employed as well. How about cutting off all or at least some of the defense-related technology and capital that U.S. multinational companies are still recklessly transferring to China, either voluntarily or under threat of being shut out of the Chinese market?

More important, whatever the resulting costs, they look a lot less intimidating than those that could result from even a brief military conflict (which logically would trigger even greater and costlier economic adjustments), or from massive Chinese cyber-attacks. And don’t forget the flip side of passivity: An America that failed to use its biggest advantage over China for fear of experiencing any pain at all inevitably would be an America that flashed a big, fat green light to Beijing’s expansionists.

(What’s Left of) Our Economy: Media Flattery for America’s Corporate China Lobby

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China, cyber-security, Financial Times, hacking, lobbying, multinational corporations, offshoring, protectionism, technology, technology transfer, The Wall Street Journal, {What's Left of) Our Economy

Even before checking out The Wall Street Journal this morning, I was going to post an item on some truly weird material quasi-buried in a Financial Times piece from last week. The Journal article, however, showed  that it’s become nothing less than vital to spotlight this latest instance of how the media spreads the most whoppingly one-sided information on many U.S.-China-related subjects in the most offhanded ways.

According to FT writers Geoff Dyer and Richard Waters in a September 11 piece on “High-tech diplomacy” between the United States and China, “The American business community once saw itself as almost a go-between in the US-China relationship, an embodiment of the two countries’ intertwined economic fates and a diplomatic actor that was sometimes able to take the edge off political arguments” and a “conduit between governments.”

More recently, they observe, the companies have “started to lean more heavily on Washington for support against Chinese policies that seemed designed either to shut them out of large sections of the Chinese market or pressure them to hand over key technologies.” And of course, the article dutifully quotes an “expert” from an American think tank (which happens to be heavily funded by such businesses) sympathetically describing the companies as “being pulled in many directions by both governments in what has become a much more complicated relationship….Most of them do not like being caught in the middle.” Who could help but feel their pain?

These offshoring companies have indeed been hoisted by Beijing on the petard of their longtime claims that expanding trade with China would greatly benefit the U.S. economy, too; that China was moving steadily towards Western business and even legal, and political norms; and that therefore Washington should mainly turn the other cheek in response to any continued economic predation by the Chinese. The firms also undoubtedly told the two FT reporters that they previously saw themselves as valuable diplomatic intermediaries – as is their right. And perhaps some executives actually believed that.  It’s true, moreover, that the FT didn’t present these descriptions as fact.

At the same time, because an alternative perspective was completely ignored, what else could a reader not steeped in these subjects conclude? And omissions like this matter, because what Dyer and Waters didn’t mention is all the evidence that American companies operating in China have actually served, and every effectively, as de facto lobbyists for a Chinese government. Their common interest? Preventing American officials from rocking the boat of bilateral economic relations in order to preserve profits both were reaping at the expense of domestic U.S. producers and their employees – aka the productive core of the American economy. For as the media has ignored ever since China trade issues have been stirring controversy, U.S.-owned firms whose products are made in China for export to the United States benefit every bit as much from Chinese subsidies and protectionism as Chinese-owned companies.

Where the Journal piece comes in is in providing crucial perspective about the growing number and volume of corporate complaints about China’s increasingly brazen protectionism. On top of refusing to support measures that arguably could counter China’s latest moves, the American firms – especially the tech companies – have massively caved to the pressure. As reported by the Journal’s Eva Dou and Don Clark (and as described by RealityChek for months), these companies are doubling down on their longstanding policies of transferring capital and, most important, cutting-edge technology, to Chinese enterprises. The FT referenced these moves, but only briefly, and deep into the second half of the article.

And by the way, if you look at the types of knowhow being provided to China (as I’ve been doing for years), it’s no mystery why it’s become so adept at hacking key U.S. government and private sector computer systems. In other words, reasons abound for viewing the corporations so indulgently portrayed in the FT not only as whiners, but as dangerously two-faced whiners.

No one should want the FT or any other news organization to take sides in this debate. But the media needs to do a much better job remembering that these giant companies already have their own flacks.

Our So-Called Foreign Policy: The Big Backfire Potential of Obama’s Reported New Cyber-Security Policy

Tags

China, cyber-security, cyber-war, hacking, Martin Dempsey, Obama, Our So-Called Foreign Policy, Washington Post

If Rule Number One in medicine is “Do No Harm,” then Rule Number One in foreign policy-making is surely “Do No Harm to Your Own Country.” Which is why the Washington Post‘s report this morning on the latest wrinkle in the Obama administration’s cyber-security strategy is such bad news if it’s true.

According to Post reporter Ellen Nakashima, the president is seriously considering retaliating against China’s cyber-attacks on American business in significantly stronger ways. At first glance, this kind of decision seems welcome. After all, unlike Chinese (and other) hacks of U.S. government agencies, attacks on business don’t qualify as just the newest version of the kind of national security-related spying that’s common practice by all the world’s governments, including America’s. The administration has responded so far mainly by complaining to Beijing, urging the negotiation of international cyber “rules of the road,” and by indicting a handful of Chinese military personnel for penetrating American corporate computer systems – to no apparent avail.

But the likeliest effect of this report – much less an actual U.S. decision to take the steps described – is to advertise American weakness on this front, not strength, and encourage still more, and more destructive, Chinese (and other) attacks. The reason is simple. The retaliatory moves supposedly being mulled by Mr. Obama wouldn’t target the Chinese economy as such. Instead, they would be aimed at “Chinese companies and individuals who have benefited from their government’s cybertheft.”

Targeted sanctions arguably make sense when companies and individuals are the real culprits. But does anyone seriously think that whatever and whoever Chinese actors are hacking American companies are free agents having nothing to do with the Chinese government – and in fact the top Chinese leadership? Of course not.

One former Obama cyber security official quoted (by name) in the article argued that the contemplated sanctions could effectively put out of business any large and global companies that are sanctioned. Why so? Because, as he explained “most significant financial institutions refuse to do business with individuals who have been sanctioned by the United States. ‘So any company that’s been targeted under this authority…will likely find it very difficult to participate in the international financial sector. ‘”

That reasoning sounds impressive – but only if the sanctions hit one of the state-owned business giants so prominent in the Chinese economy. Any entities even modestly smaller would seem to face few obstacles under China’s fake legal and regulatory systems in dodging retaliation by simply changing their names and resuming operations after a decent interval. The Chinese government is so secretive that Washington would face excruciating difficulties even identifying the ruse.

And since both the Chinese government and the U.S. government are undoubtedly aware of all these realities, it’s hard to avoid concluding that this new American approach amounts to (unwittingly) flashing a green light for Beijing’s hackers, not issuing a credible warning. And this interpretation looks even more convincing given the statement I’ve flagged from recently retired Chairman of the Joint Chiefs of Staff Martin Dempsey (while he was still on duty) that the United States does not enjoy cyber-war superiority in today’s world. Just to remind you – that’s the American military’s top post.

As a result, no one should blame President Obama for proceeding cautiously in the cyber warfare realm. But he can legitimately be blamed for making – and telegraphing – policy choices that can only embolden U.S. adversaries.

Our So-Called Foreign Policy: Obama Cyber-Security Failings Getting Lost in the Shuffle

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China, cyber-security, cyber-security summit, Financial Times, hacking, Obama, Office of Personnel Management, OPM, Our So-Called Foreign Policy, Xi JInPing

President Obama has two big reasons to thank his lucky stars so far this summer. As widely noted, he’s racked up a series of impressive legislative and political wins, including fast track trade negotiating authority, favorable Supreme Court decisions on same sex marriage and his healthcare program, and (for now) conclusion of a nuclear arms proliferation deal with Iran.

Less widely noted is how this winning streak, along with a stunning rush of events that’s included everything from the Greece Crisis to the noisy rise of Donald Trump as a presidential candidate, has contributed to the president’s luck in another big way. They have also greatly overshadowed the hack of the federal government’s main personnel agency, which has been called a genuine intelligence disaster, and which should have the nation robustly debating whether the Obama administration has been asleep at the cyber-security switch.

Of course, the president has said a great deal about cyber-security. For example, he’s brought up the issue at a summit with Chinese leader Xi Jinping – whose government is suspected of hacking the Office of Personnel Management (OPM) and other important American targets. And he’s held a splashy White House meeting on the issue. But according to a Financial Times analysis last week of U.S. Government figures and studies, administration actions have been woefully inadequate.

The Financial Times says it’s looked at “dozens of reports by agency inspectors general, the Government Accountability Office and the Office of Management and Budget [OMB].” Their collective findings? “For years more than half of the 24 agencies required to report their cyber defences failed to take the most basic security steps. Such measures include patching software holes, using strong authentication technology and continuously monitoring systems, to help secure the troves of data collected on employees, retired military officials and government programmes.”

One big reason for this shoddy record is that few government agencies appear to take cyber threats seriously. According to the Financial Times, OMB figures show that agencies whose cyber-security expenditures represented less than two percent of their 2014 budgets include the Pentagon, the Energy Department (which handles much American nuclear weapons and proliferation-related research), NASA, the State Department, the Treasury (whose responsibilities include staunching the flow of funding to terrorist groups), the Social Security Administration, and OPM.

The Justice Department and Department of Homeland Security look more on the ball, but still only devoted a little more than three percent and just about two percent of their budgets, respectively, to cyber-security.

Throwing money at a problem is no cure-all, especially since as the Financial Times piece makes clear, the federal bureaucracy still isn’t well structured to spend it effectively? (A problem that, as I’ve written, includes the appointment of cyber-clueless agency heads.) But how can the nation hope to protect itself adequately against cyber-threats if, as the article also documents, the overall funding available to handle them is growing so much more slowly than the number of attacks? Where’s the evidence that the president is even thinking about raising Washington’s game, or that Congress and the media are acting like effective watchdogs? And how many more mega-hacks will the nation need to experience before cyber-security even becomes front page news again, much less a real White House priority?

Following Up: Trump & Sanders, Obama’s Katrina Moment, Manufacturing Fakeonomics – & an Overdue Thank You

Tags

2016 elections, Bernie Sanders, climate change, cyber-security, Democratic Party, Donald Trump, Following Up, hacking, Hillary Clinton, Immigration, Institute for Supply Management, ISM, Katherine Archuleta, manufacturing, Obama, Office of Personnel Management, Open Borders, OPM, Populism

For some reason, Hillary Clinton’s campaign website isn’t technologically up to speed enough to have posted a transcript of the “economic vision” speech she delivered this morning. So instead of analyzing it, I’ll try something a little different on RealityChek – a “Following Up” offering covering multiple subjects.

The first starts off with an apology. In last week’s piece on how Donald Trump could (but probably won’t) help generate long-term change in American politics, I wrote that his president candidacy nonetheless seemed more likely candidate than Democrat-Socialist Bernie Sanders’ to foster badly needed ideological realignment. My stated reason was that the big obstacle to Trump efforts along these lines is his personality, whereas the big obstacle to the Vermont Senator playing such a role is his ideology.

But then when I discussed in detail Sanders’ prospects as a change agent, I wrote that “he seems to be a more plausible candidate to help create an enduring populist alternative to the two major parties.” And my stated reasons included the ideological flexibility he’s displayed on issues like gun control! So what gives? In a word, I messed up. So let me try to clarify.

I still believe that Trump’s “superstar CEO” nature and consequent unwillingness to take advice from anything but Yes-men will prevent him from trying to turn his presidential campaign into a lasting movement once the former runs its course. Nor do I see any reason to change my mind despite some new comments from him suggesting the possibility of running as an independent in the fall campaign and continuing his political work beyond the current election cycle.

I also remain impressed with Sanders’ pragmatism and willingness to reach across the aisle for both legislative support and also counsel. But I don’t believe that he’ll display the same traits on the immigration and climate change issues I focused on. Re the former, he seems to be too personally invested to moderate much. Re the latter, I don’t believe he’ll want to buck the overwhelming tide I see in the Democratic party for ever more Open Borders.

Hence my conclusion – that a Trump personality change relevant to creating a new, bipartisan American populism is a better bet than a similar Sanders ideological change. But that doesn’t mean I view such a Trump transformation as even close to likely. And I do apologize for the confusion I might have created.

Second, my post on how unqualified Katherine Archuleta was to head the mega-hacked federal Office of Personnel Management left out the strongest evidence for that argument: She wasn’t only a veteran Democratic political operative (with zero background in technology). She was also a senior official in President Obama’s 2012 reelection campaign. In other words, in an age of mounting cyber-threats, the president treated the government’s main personnel agency like a cushy ambassadorship to some Caribbean island mini-state. And he still hasn’t caught much heck from the Mainstream Media for this dangerously cavalier decision.

Third, one of my longtime bugaboos is how seriously economic journalists and even economists themselves take the monthly reports on domestic American manufacturing’s health by the Institute for Supply Management (ISM). In particular, I’ve shown that neither ISM’s headline readings, nor its sub-readings on production and manufacturing orders, correlate well at all with the more reliable output and orders data put out by the federal government.

Imagine, therefore, how pleased I was to discover that, a few years ago, a Commerce Department economist came to pretty much the same conclusions. According to this study, the ISM surveys don’t even do an especially good job at what’s supposed to be their strong suit – not precisely gauging the state of manufacturing in any given month, but presenting evidence of approaching changes in its fortunes and the broader business cycle. As author Daniel Bachman demonstrated exhaustively, “While more information about the state of the economy is always better, analysts of the business cycle should realize that the ISM surveys do not supercede or fully anticipate more comprehensive official data.”

Finally, one house-keeping point: an overdue thank you to the growing ranks of RealityChek followers. Your interest is greatly appreciated – and I hope you’ll spread the word!