High-tech harassment

Last week, investigators from China’s State Administration for Industry and Commerce raided Microsoft facilities in four Chinese cities, claiming it is investigating whether Microsoft violated China’s anti-monopoly laws. These trumped up charges are part of a broader effort by the Chinese government to hobble U.S. technology companies in China, promote China’s domestic IT industry and ultimately replace the U.S. as the world’s IT leader. This high-tech harassment will in all likelihood continue until China finally gets what it wants: the complete replacement in China of foreign technology companies with Chinese ones. And the only thing that will stop this is determined and resolute action from the U.S. government, in concert with our European allies, saying “enough is enough.”

The Microsoft case is not the first attack on U.S. technology companies. Over the last several years, virtually every leading American IT company has found itself in the Chinese cross hairs. It started when the Chinese government went after Google, including blocking access to the company’s servers. Last year, Apple CEO Tim Cook was forced to apologize for purported problems with iPhone warranties. Next up was Qualcomm and Cisco, with the National Development and Reform Commission claiming that both were monopolists. Around the same time, the Chinese government announced their “De-IOE campaign” to pressure Chinese companies to replace their IBM, Oracle and EMC products with Chinese made ones. Now it’s Microsoft’s turn to “run the gauntlet” and many more companies will likely be in the cross hairs of Beijing’s onslaught.

{mosads}The harassment of Microsoft is a tit for tat response to the Justice Department indictment of five Chinese military offices for hacking into U.S. companies’ computers to steal trade secrets. Indeed, the Chinese government has shown time after time that it doesn’t just act to even the score when the U.S. takes action against China; it responds with overwhelming force.

But it’s also related to China’s new industrial strategy. Since President Xi Jinping assumed power in 2012, China has rapidly accelerated its efforts to promote “indigenous innovation” at the expense of foreign producers. The goal is for Chinese companies to ultimately supplant foreign technology companies both in China and in markets around the world. The tactics involve massive government subsidies, theft of foreign know-how, and forced technology transfer in exchange for market access. Xi has stated that China must “master its own technologies” to not only promote growth, but national security.

But around a year ago, the Chinese government added a new tactic directly attacking foreign companies. These attacks also happened at the same time Xi took over the reigns of a new Communist Party-led committee on cybersecurity; thus it is without question that China’s top Communist Party leadership is actively promoting these attacks. It’s hard to underestimate the role of Edward Snowden’s NSA revelations in this change of tactic. Before Snowden, the Chinese government was reticent to play this intimidation card. But Snowden allowed the Chinese government to claim the moral high ground and go after U.S. tech companies on trumped-up charges of lack of security.

It’s easy for the Chinese government to use Chinese law as an industrial policy weapon, as there is no real rule of law and their regulations, like their anti-monopoly law, give the government carte blanche ability to go after any foreign company for almost any reason, trumped up or legitimate. And with the courts largely rubber-stamping Communist dictates, companies have little choice but to comply. And all too often, complying means changing their terms of business so that they sell to the Chinese for less and/or transfer even more technology.

The rapid decline of U.S. tech giants in China directly threatens the long-term economic security of the United States. If these policies are allowed to continue, we may soon see more U.S. tech companies falling behind, replaced by their Chinese competitors. For example, the Chinese State Council just released a strategic plan to dominate the global semiconductor supply chain by 2030.

So why has the Obama administration not done more in response? One reason is that the Washington trade establishment believes we are dealing with a nation that generally plays by the rules and where they don’t, they can be educated about the right path. The reality is that since the Chinese joined the World Trade Organization in 2001, they have regressed, not progressed, on the path to a rules-based trading system.

It’s time for the administration and Congress to realize that China is not going to change, at least while ruled by the Communist Party, and that we need a new approach aside from imploring and educating.

This means realizing that we are in a trade war and a long-term fight for leading the global technology industry — a war we will lose unless we escalate our response. Fighting back has risks, but so does appeasement: the significant weakening of U.S. competitiveness and lost jobs. The Chinese have shown that they will respond to pressure, but only if it’s serious and done in concert with our allies.

To that end, the administration needs to restructure the interagency trade enforcement process. Too often agencies like the Departments of Treasury, Justice and State veto strong action against China. It’s time for the U.S. Trade Representative and the Commerce Department to control trade policy.

In addition, we need to understand that this is like the Cold War. We can’t win it without Europe joining the fight. But for too long, Europe has enjoyed letting the U.S. be the “bad cop” with China, thinking that their companies will get the spoils. It’s time for Europe to step up and join the fight.

It’s not too late to protect global innovation and U.S. and European technology from this unfair assault from China. But absent concerted action soon, we will have to live with the negative consequences.

Atkinson is president of the Information Technology and Innovation Foundation.