China cyber competition and free trade

Everything that rises must converge. That is, states won’t be happy to tolerate indefinite cyber attacks aimed at stealing intellectual property, without those attacks beginning to spoil other areas. Trefor Moss of the Diplomat writes…

…If attacks and counter-attacks are left unchecked, cyberspace may become the venue for a new Cold War for the Internet generation. Much as the old Cold War was characterized by indirect conflict involving proxy forces in third-party states, its 21st century reboot might become a story of virtual conflict prosecuted by shadowy actors in the digital realm.

So far, so good. The title of the article speaks for itself: “Is Cyber War the New Cold War”. We at The Cold War Daily see this macro trend emerging.

Moss notes

And as this undeclared conflict poisons bilateral relations over time, the risk of it spilling over into kinetic hostilities will only grow.

But the unique nature of cyberspace means it’s not clear if a body has been attacked, or who has been attacked. What I find unlikely though, is one of the possible remedies Moss outlines. In one future scenario:

victims of virtual theft might instead focus on gathering evidence and then seek reparations at the World Trade Organisation or the International Court of Justice, much as they would do in cases of IP theft or breaches of sovereignty .

Arguably the WTO doesn’t serve its creators as it once did. In fact, as another writer at the

Integrated circuit (Wikicommons)

Diplomat notes: There might be a covert trade war emerging between China and the US. While many US companies find China the cards stacked against them when doing business there, the US is putting restrictions on the use of China-made telecommunications equipment in the US.

The most famous case is the report from Congress urging US companies not to use equipment from Huawei and ZTE on national security grounds. Both US and Japanese regulators are pushing Sprint and Softbank to bar the use of Chinese-made telecommunications equipment as a condition of their merger.

That doesn’t mean the WTO doesn’t have many more fine years left in it. But let’s just say there aren’t nearly as many people in the world who have such high expectations for free-trade and globalization. Increasingly it’s only the die-hards who do. Skeptics can say that while emerging economies have in fact grown and developed, their legal systems and sense of fair-play in business practices haven’t grown at the same pace.

Take the example brought up here of the impact of hacking on start-ups, which are all about their intellectual property. It’s doubtful these small organisations will have the resources to pursue cases at the WTO or the International Court of Justice. But start-ups are the life blood of the US’s dynamic economy. Are we saying these small, innovative companies must operate in an environment where their code is there for the poaching? I don’t think that’s really acceptable.

China or the US, which is the playground for the other?

Obama himself named China as a data thief in a recent interview. This is the culmination of weeks of public focus on the issue. It also highlights the contradiction between China’s trade relationship with the US and it’s strategic relationship. In the long term, does it make sense for American consumers to reward a country that is actively undermining the US? My hunch is that the long road to this public acknowledgement has been made longer by an unwillingness on the part of Americans to embrace this truth. It seems like only yesterday (around 2000) that US businesses pushed for China’s accession to the WTO in the belief it would be a playground for US capitalism. Instead, the US has become a playground for Chinese authoritarian capitalism.

It’s hard to see how this relates to a China-US relations

Walmart pledges to increase the share of goods sourced domestically. For a company with 12-month trailing revenues of $464 billion, a pledge to lift sourcing of US-made products by $50 billion over the next decade, is not huge. Yet even if this is a glorified press release, it shows a very large company responding to a change in the domestic political climate. The climate is turning against globalization, most certainly in the US, but also through many of the developed economies. With that change occurring, the economics link between China and the US will also weaken. Down the line, that will free up these countries to act more independently of each other. This could become a factor that enters into thinking about broader strategy.