The Chinese government and its proxies have recently ratcheted up harassment of U.S. IT firms doing business in China. In the last week, China has deployed its antitrust laws against Qualcomm and Microsoft. This comes on the heels of recent attacks in China on Apple and Cisco and IBM. China has also increased its harassment of non-IT U.S. firms. And these are just the cases that have been reported. What is going on? Retaliation for Snowden-disclosed USG cybersnooping in China? For the indictments in May of Chinese officials for cybersnooping? For U.S. barriers to entry for Chinese IT firms in the United States? Old-fashioned protectionism?
Who knows. But these episodes do make apparent the weakness of the U.S. hand in trying to sanction China for cybersnooping, including with indictments against officials who will never be brought to the United States. The essential problem is that China appears to be able to do more damage to U.S. interests in China than the United States can do to Chinese interests in the United States. Cybertheft in the United States can be carried out from China without any “presence” in the United States, and thus essentially beyond the reach of U.S. regulators (including the Justice Department); but U.S. firms must have a presence in China – assets, employees, and the like – to do business in China. And because of good old fashioned territorial sovereignty, that means that China has more leverage. Of course there are broader factors in play, and of course there are many things that China firms and officials want to do in the United States (think, Huawei, U.S. educational institutions, etc.) that gives the United States leverage. But if standard news reports about the modest retaliation games going on right now are a proper guide, it appears that China has greater leverage, much greater leverage, in virtue of its size and huge potential market for U.S. products and services.
In a post trying to put the best face on the U.S. indictments in May, I wrote: “I am skeptical that the USG will in fact continue to ratchet up the stakes to a degree that will make it irrational for China to continue on its current course, because doing so can quickly become very costly to many U.S. interests, and because China’s bounty from cybertheft is so great that it can absorb quite a lot of USG retaliation in any event.” Several months on, my skepticism has increased.