In the story on the US government explicitly naming China as a source of cyber-espionage, David Sanger points out the conundrum for the US.

But the report does not address how the Obama administration should deal with that problem in an economically interconnected world where the United States encourages those investments, and its own in China, to create jobs and deepen the relationship between the world’s No. 1 and No. 2 economies. Some experts have argued that the threat from China has been exaggerated. They point out that the Chinese government — unlike, say, Iran or North Korea — has such deep investments in the United States that it cannot afford to mount a crippling cyberstrike on the country.

What do you do when you learn your trade partner is using the very technology you sold them against you? What do you do when you learn that China’s economy is growing in a way that undermines the US? As an Australian sailor once quipped, regarding Australia and China: “We’re selling China heaps of iron ore. You have to wonder how much of it they’re using to make weapons they will eventually aim against us?”

Good question, Australian sailor.

Take the same conundrum use it for the basis of understanding the China-US relationship. As Jarod Cohen tweeted:

The US & China are allies in the physical world, but in cyberspace, they’re adversaries (newdigitalage.com) #NewDigitalAge

— Jared Cohen (@JaredCohen) April 28, 2013

The Obama administration, to their credit, is doing everything they can to alert and awake the American people. And yes, as Sanger notes, the US also has robust cyber-attack capabilities, such as those used against Iran’s nuclear program. But the difference between China and the US is that the US’s Cyber Command is not fused to Wall Street, scanning the world’s computers to siphon off all the trade data, inventions, intellectual property, data bases of valuable information it can. China because of this, and because of its scale, is unique in this way. So it’s a unique threat.

That puts to bed the false equivalence of the US Cyber Command and what China does.

But the biggest question is of course: how to ruggedize the US economy for this kind of world, where your biggest trade partner is your biggest thief. There are a couple options. As the US economy restructures and climbs back from years of low growth and unemployment, it needs the kind of industrial policy that makes it more impervious to China’s tactics.

This is doable. But I’d say one of the first ways to facilitate it is to kill a couple sacred cows.

One is that, while yes, Americans support a free market, they must recognize they are competing against economies that favor government intervention where it aides the national goal of development. In some areas, such as coordinating against external threats, US companies must work alongside the government for the benefit of the whole.

This kind of thing would have happened during the cold war in a number industries.

But in order to do that, US companies must resolve an identity crisis that has come about during the peak of globalization. That is: these companies must recognize whether they’re American and they benefit from the economy and laws of America, or they’re truly globalized institutions with loyalty only to the most advantageous market.

What could possibly cause this change in thinking? It would have to be something big and threatening for Americans?

Maybe, possibly it would be something like the rise of an aggressive superpower across the Pacific. Just a thought.