Another aspect of IP theft is system compromise. The Terminal High Altitude Area Defense (THAAD) antiballistic missile and the P-8 anti-submarine warfare aircraft, along with other U.S. weapon systems, have been found to contain counterfeit parts that may reduce mission performance. According to former Democratic Senator Carl Levin, “There is a flood of counterfeits and it is putting our military men at risk and costing us a fortune.” The range and methods employed by the Chinese deemphasize blatant, transparent thefts, governmental involvement, and insertions, but have increased in their sophistication and breadth.
The cessation of Chinese IP theft will require a concentrated effort and new modalities by the U.S. Government working with American industry, yet such action would yield enormous benefits, and if coupled with synchronous actions by allied governments, the PRC would be impinged, but would have no avenue of complaint. As an initial step, the NATO countries, Australia, Japan, and the Republic of Korea should develop the means to rapidly pass intelligence between them regarding industries and companies that possess key technologies believed to be at risk, or that have been targeted by China according to intelligence sources.
A multilateral initiative of this type is foundational to success in this difficult and contested sphere. Affected countries can then work with businesses to halt illicit transfers. In terms of counterfeited items, with particular concern for the compromise of military equipment through the unintended incorporation of Chinese-made parts, a system of etching, lithography, and secret coding by time, date, and place of manufacture may secure each part and thus inhibit Chinese infiltration and the compromise of our military systems.
The 2013 IP Commission Report prepared by former Director of National Intelligence Admiral Dennis Blair and by Ambassador John Huntsman stated that the following measure be considered in the context of IP theft, “if the loss of IP continues at current levels” and other remedial actions fail, “Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce.”
U.S. imports from China in 2019 amounted to $452.2 billion, resulting in a net trade deficit of $345.6 billion. Assuming IP losses due to China of $270 billion for 2019, the imposition of the suggested tariff would yield $405 billion in revenue, wiping away the entire trade deficit, if trade continues at present levels. In actuality, however, tariffs at these levels would reduce trade substantially, which the PRC fears.
In our consideration of IP theft, we must not overlook direct efforts to infiltrate or to co-opt. Mathematician, aerospace engineer, and nuclear physicist Hsue-Shen Tsien, born in Shanghai, was educated at MIT and then recruited to work at the California Institute of Technology and the Jet Propulsion Laboratory. As a scientist, he participated in the creation of the first atomic bomb as part of the Manhattan Project. Hsue-Shen Tsien was later stripped of his security clearances due to concerns that he was a communist and a spy and in 1951 was declared subject to deportation. Subsequently, Hsue-Shen Tsien was allegedly traded for American pilots, captured during the Korean War.
Upon his arrival in China, Hsue-Shen Tsien became the architect of China’s atomic bomb program. Later, he became known as the “Father of Chinese Rocketry” for his work in the development of the Dongfeng ballistic missile; the fruits of Hsue-Shen Tsien’s work and associations now undergird North Korea’s nuclear and ballistic-missile programs. Unfortunately, this type of case is not unique. Thus, prevention of the PRC’s exfiltration of defense, high-technology, and energy-related data has to become the first priority of the Counterintelligence Division of the National Security Branch of the Federal Bureau of Investigation.
To address the trade imbalance and IP theft, asymmetric responses must then be gamed, and pathways found. The arsenal of American policy tools may then be leveraged in a systematic way, which minimizes deleterious consequences. Preservation of our technological base requires that we enact severe limits on PRC graduate students in all Science, Technology, Engineering, and Mathematics (STEM) subjects. Therefore, we should rescind, where possible, any grant funding to students from the PRC. In addition, all Confucius Institutes at American universities should be shuttered until they be stripped of their propagandistic mission.
The exception for national security reasons to the presumption in favor of free trade is embodied in the World Trade Organization as well as our nation’s trade laws. Contracting nations to the WTO have recognized the requirement for independent defense and security measures, which need to be exempt from general legal obligations: the WTO incorporates Article XXI of GATT 1994, which provides for national security exemptions.
The president can expand his use of Section 232 findings (as specified in the Trade Expansion Act of 1962), which require the president determine whether imports “threaten to impair the national security.” As an immediate measure to effect a level of self-sufficiency with regard to domestic medical production, Section 232 could be employed to ensure that a specified level of the nation’s supply (net of exports) be provided by domestic or allied sources for drugs and medical products.
There have been calls, in the wake of this pandemic, for the United States to abandon the WTO, which succeeded the General Agreement on Tariffs and Trade (GATT). It is premature for the United States to leave an organization that has embodied our principles and has its root in our establishment of a world order in the aftermath of World War II. China has abused the WTO’s policy that permits countries to self-identify as developing nations. The PRC, second only to the United States in economic output, has declared itself to be a developing nation and thus is the beneficiary of WTO rules designed to assist such countries. This must end.
The United States, working with allied nations, must attempt to reform the WTO, to constrain China’s abuse of the WTO’s principles and agreements, which were designed to promote free trade and fairness. Only if America does not succeed, should we consider the abandonment of an international organization that we did so much to create and nurture, and should the need to abandon the WTO come to pass, our exit must not be unilateral.
To address trade imbalances with China, a comprehensive list must be assembled of the policy tools, laws, illicit practices, customs, inducements, and regulations that China uses to spur trade. Such information should be at hand from the United States intelligence community and from other offices of government. Responses must be wrought using decision analyses to shape strategy.
In the wake of the present pandemic, President Trump must declare the magnitude of IP losses to the U.S. He must state America has heretofore expended little meaningful effort to eliminate such theft. Thus, the president must enforce fair and reciprocal trade, which takes full account of the PRC’s goals. Congress must act in a bipartisan manner to grant the president expanded trade tools, which answer China’s threat to our national security and economy.
- Oppose Chinese IP theft in all its forms.
- Explicate that China’s economic expansion would have been impossible without their theft of American technology; produce and distribute lists of technologies and products stolen or copied by China; urge other countries to do the same.
- Make the numbers relevant: explain that the U.S. has lost enough from IP theft to have made two million American families instant millionaires.
- Target counterfeit parts and assemblies, which may compromise critical machinery or weapon systems; institute tagging measures to ensure genuineness.
- Lead the NATO nations, Australia, Japan, and the Republic of Korea in the collection and the dissemination of business-specific information related to IP theft and countermeasures.
- Institute punishing tariffs against the PRC if IP theft persists.
- Initiate comprehensive controls to prevent the stealing of data, by foreign agents, from our defense, high-technology, and energy-related industrial base; order the FBI to make such IP theft the top priority of its Counterintelligence Division, and put into law criminal penalties for any American company or individual that shares proprietary or sensitive information with China, which pertains to these matters.
- Limit strictly the opportunities for students from the PRC to study the STEM subjects at the graduate level.
- Employ Section 232 findings to shore up our medically related industries.
- Develop a comprehensive, publically available inventory of China’s unfair trade practices and the tools it uses to achieve its aims.
- Reform the WTO or leave it along with other U.S. allies.
To name but five American businesses under full or partial Chinese ownership is to demonstrate the penetration of our economy by large Chinese companies. Motorola Mobility and IBM's personal computer division have been acquired by Lenovo; Smithfield Foods, the world’s largest pork producer, is owned by the WH Group; Legendary Pictures Productions, LLC, is owned by the Wanda Group, which also has held a significant stake in AMC Theatres, the largest chain in America.