MASS DISINFORMATION IN THE TRADE WAR LEADS TO A GUILTY WITHOUT EVIDENCE TREND
by Manuel Lee
Summary: Most people in this country (the United States) believe that China “stole us blind” for decades. Is there a lot of truth to this belief or is there just a little bit of truth? This short paper researches this topic, lays out the US government accusations, and displays the facts and evidences related to the accusations. The accusation topics include, theft of IP (Intellectual Property) through hacking or direct theft, forced technology transfer, trade deficit, unduly high tariffs, subsidizing industries, and currency manipulation. This paper also provides, for the fist time, an estimate of the actual number of hacks suffered by the United States from state sponsored hackers. This number cannot be found from US government sources. For the most part the research shows that the accusation are over blown and often are vastly over blown. If such is the case, is the American people’s anger over China justified? If the American people have been deliberately misinformed, then it is incumbent on a democratic society to correct the disinformation. Wars have been fought over misunderstandings. In fact the issue is more than just China-US relationship but permeates into a world where words mean something or into a world where words become weapons. The most useful mechanism to correct disinformation is to forcefully demand solid evidence of wrong doing from the accusing party. If the accusing party will not or cannot supply solid evidence, then no co-operation can be expected from the other party.
Keywords: China, trade war, US China trade war, IP theft, disinformation, trade war disinformation
EVERYBODY KNOWS THAT CHINA “STOLE US BLIND”
My in-law called me the other day. We talked about her tenant troubles and her financial problems. Soon we were talking about the shrinking middle class and the joblessness in the United States. She blames a lot of these problems on China’s unfair trade practices. She is Chinese herself, born in China, grew up in Hong Kong, married to a Chinese American man, and has several children. She said that China has stolen most of the technology that China has and that cost her and other Americans financial problems. I asked her how she knows this. Her reply was that “everybody knows that”. I ask if she has read any evidence. She said that it is reported in the newspapers everyday. I told her that newspaper reports without hard evidence are not good enough. As an engineer myself I know how difficult it is to copy machines that I did not design. For the next one half hour I explained to her how difficult it is to steal technology and turn that stolen information into successful products. In the end, she was less sure of her position, but it was difficult for her to accept that the newspaper reports were mostly hearsay without hard evidence. I followed up this conversation with further investigation of my own. The results are quite stunning.
Her case is quite typical of the average American who accepts that China is guilty without solid evidence. This situation seems to say that most Americans believe someone is guilty before being proven not guilty, a most un-American characteristic. Let us take a look at the major accusations against China and show the evidence presented. A latter section discusses in more details the difficulties with the accusations. Finally, some reasons are presented for the exaggerations in China’s situation.
THE AMERICAN CASE AGAINST CHINA
The case against China is straight forward. In speech after speech President Trump and his team accuse China of (1) Theft of American IP (Intellectual Property) through hacking. (2) Theft of IP through patent infringement. (3) Theft of American IP through espionage. (4) Forced technology transfer from American companies to Chinese companies (5) Unfair trading leading to a $350 billion deficit (6) Unduly high tariffs versus low American tariffs.(7) Unfair state subsidies of Chinese companies and industries. (8) Currency manipulation to make Chinese exports cheaper. In the USTR (US Trade Representative) government report1 accusations of theft accounts for the loss of $300 to $600 billion dollars annually. That alleged loss is more than the deficit itself and is more than 1 billion dollars every day! For such a strong accusation, there should be reams and reams of solid evidence.
THEFT OF INTELLECTUAL PROPERTY
Consider the first case, that of theft of American IP through hacking. What do the American companies themselves say? Go to the USTR1 report section 301. Now go to the chart on page 173. The chart shows the companies’ responses to cyber attacks from all sources (not just China) from 8000 companies. The chart is shown below.
The result, only 264 companies (out of 8000) mentioned sales losses, and only 54 mentioned theft of software/source code. Extrapolated (assuming around 16,000 large companies in the US2), we are talking about maybe tens of millions of dollars in losses, not hundreds of billions of dollars! Thus it is the US government’s own report that is its own DAMNING ADMISSION of the enormous exaggerations of IP theft by China.
Next we consider technology theft in general. On Wednesday, July 29, 2020, the CEO’s of Google, Apple, Amazon, and Facebook went on the stand in an anti-trust Congressional hearing3. Under oath they were asked if they had knowledge of their IP being stolen by China. Apple’s Tim Cook said he has no knowledge of Chinese technology theft. Jeff Bezos of Amazon said that he had no first hand knowledge of Chinese theft. Google CEO said that he has no experience of this. Facebook CEO played it safe and said, “it is common knowledge that China steals IP”. Thus, in a confirmation of the thrust of the above chart, America’s biggest corporations do not experience IP theft of any significance from China.
FORCED TECHNOLOGY TRANSFER
Next we consider the American claim of “forced technology transfer”. The American trade negotiation team emphasized that China uses “forced technology transfer” to obtain American technology. On page 41 of their report1, there is a section devoted to this topic. The idea is that the Chinese government or its regulatory agencies have the authority to force American companies to disclose their technology before they enter the Chinese market. Yet, the Chinese trade team and the Chinese ambassador to the US have said that there is NO such law in China that can force a company to give up its technology secrets. Even if there is such a law, an American company can simply refuse to enter the Chinese market if it wants to keep its technology secret. The USTR report cite an example of a company being asked for the temperature and pressure of its operating process and the report implied that giving out this information would allow some unknown Chinese company to immediately copy its complicated machinery and duplicate the process and China can then reject the American company and steal the technology. Technology development is a lot more complicated than this and stealing a whole technology just by giving out temperature and pressure information is more American hyper exaggeration. In general this “forced technology transfer” does not really happen. An American company that wants to manufacture in China will move its factories to China, along with a voluntary transfer of technology. When all your workers are Chinese and your engineers are Chinese it is hard to keep trade secrets. The Chinese partner needs the American company for its brand name, marketing, and guidance, while the American partner needs the Chinese partner for navigating through the Chinese system, low cost labor and engineer service. The Chinese company is also worried of facing law suits if it operates improperly. A situation where the Chinese company takes over and drops the Americans rarely happens.
TRADE DEFICIT
Next we come to President Trump’s complain that China sells a lot more to the US than China buys from the US. President Trump thinks that it is an unfair practice that must be corrected. Actually China rings up a huge deficit trading with some countries such as South Korea4 (about $100 billion USD). China also has trade deficits with Germany, Japan, Australia, and many Asian countries. China needs to buy lots of high tech goods from South Korea, Germany and Japan, and lots of mineral and ores from Australia, but these countries don’t buy as much from China. So it is a matter of market demand that Americans want to buy lots of Chinese goods but China needs to buy less of American goods. Because the Chinese goods are considerably less expensive than if they were made in the US, it is a good deal for the US. The money saved from low cost products can be used for investing in education, infrastructure, and new technologies. Unfortunately, Americans have become less conducive to investing in these important areas. Instead lots of money are spent on drug abusive, overly expensive health care, entertainment, and the military. This demand that China’s trade balance with the US should be roughly equal is unreasonable and unfair. Once a nation succumbs to unreasonable demands then big problems will arise. The Phase I trade deal is an example where China succumbed to the US demand that the trade between the two countries should be roughly equal. Soon after the deal was signed, the Coronavirus pandemic hit both nations and the resulting economic chaos made the deal difficult to follow through.
UNDULY HIGH TARIFFS
Next we come to the complain of unduly high tariff put up by China. In the Spring of 2018 President Trump made several prominent TV speeches that claimed that China’s tariff on US cars is 25% whereas the US tariff on Chinese cars is only 2.5%. He then erroneously claimed that this is typical of the tariffs levied by each country. Politifact5 says that on the surface his statement is mostly true, but noted 2 caveats. First, the Chinese car market is relatively insignificant in the US, and second, the really important tariff is on car parts by which China assembles automobiles for big automobile manufacturers. The Chinese tariff on car parts is 10%. The average of tariffs charged by China and charged by the US can be summarized by the following chart6 from Statista:
We note that from the chart the average US tariff is 1.6% while the average Chinese tariff is 3.5% or roughly double the US tariff. President Trumps’s implication that China’s tariff is 10 times that of the US is plain disinformation. In fact, for a relatively poor country (per capita) , China’s tariffs are lower than other similarly poor nations.
SUBSIDIZING INDUSTRIES
Now we come to the complain, that China unfairly subsidizes its industries. With the accession of China to the WTO in 2001, China agreed to a liberalization of its economy and increasing liberalizing as its economy reaches greater maturity. Recently, China said that it is increasing the liberalization and will end market distorting subsidies7. On the other hand, the US has kept up huge subsidies for a number of industries including, agriculture, oil, automobile, ethanol, solar and many others8. Thus while China is working on this last complain, the US is not doing its part to reduce subsidies.
If subsidizing industries is of real concern, the US should take its case to the WTO. However, the US believes that the WTO is biased in favor of China and has not diligently worked with the WTO.
Economic theory in the West believes that subsidizing industries will eventually cause loss of competitiveness, stagnation, and bankruptcy. Accordingly, the US should not complain but should encourage China to subsidize even more in order to bankrupt China.
CURRENCY MANIPULATION
The Trump administration has accused China of currency manipulation. In a New York Times article9, China is not seen as a currency manipulator.
“China’s foreign exchange reserves, a key indicator of the degree of foreign exchange market intervention, has been quite stable over the last year (2019),” said Eswar Prasad, former head of the International Monetary Fund’s China division. “While China still has a sizable trade surplus with the U.S., its overall current position is near balance, further undercutting the characterization of China as a currency manipulator.”
This accusation is therefore without foundation.
WHERE ARE THE EVIDENCES ?
The above discussion on the accusations against China shows that the accusations are usually not backed up by evidence. Where the accusation is really true, such as the charge of a 25% tariff on automobiles, often the analysis shows that it is actually disinformation.
Yet, for all the disinformation and exaggeration, the USTR report1, section 301, does compile the theft or attempted theft of several dozen cases from China over a roughly 20 year period. It is true that there are hackers from China, some state sponsored, and some not, that hacked and attempt to hack into American business and government computer systems. However, it does not seem reasonable that these few hack would result in hundreds of billion of dollars worth of IP stolen. According to FBI director Christopher Wray, China’s hacking accounts for nearly half of the FBI cases10. He also said, "At this very moment, China is working to compromise American healthcare organizations, pharmaceutical companies and academic institutions conducting essential COVID-19 research." He made the comments at the Hudson Institute think tank in Washington, D.C.
One prime target of US spying is Huawei, the giant Chinese internet hardware maker. Edward Snowden said that Huawei has been spied upon since 200711. Yet, for all that spying, the US government has not been able to obtain any “smoking gun” in terms of theft of IP or sharing data with Beijing12. More recently, the Trump administration has been targeting TikTok, the app for short video clips that is popular with teenagers. However, the CIA has found no evidence that TikTok shares data with Beijing13.
RIGHT FOR WORLD TO DEMAND EVIDENCE OF $1 TRILLION THEFT
If China’s theft represents half of all the hacking and theft of industrial secrets and information, it is simple to calculate that since China is accused of stealing $300 billion to $600 billion each year, that the entire world therefore steals around $1 trillion each year from the US (about 3 billion every day). This is a ridiculously huge amount, and shows the level of exaggeration that the US will go to smear a country. However, the US is the world foremost economy and has the world’s largest budget on cyber defense and cyber warfare. Surely the US can back up its accusations with concrete evidence. Therefore it is right for China to demand evidence that she steals $300 billion to $600 billion each year. It is also right that the world demands that the US give evidence that the world’s countries steal $1 trillion each year from the US. Yes, the FBI and the US Trade Representative should compile the evidence and show that to the world. Show the evidence!
A possible explanation for the exaggerated amount of theft is perhaps indicated from the recent accusation of 2 Chinese hackers stealing data on research into the vaccine development for the Coronavirus14. The hackers copied emails from administrators, communications between researchers, and clinical data. What was stolen was information, NOT the potential IP worth of the project. Yet, what was implied was that the hackers stole billion dollars worth of research. It is possible that in general, the dollar losses attributed to theft of IP by China is the sum of the total worth of the IP or the amount of funding that is in a research project. This kind of accounting, if true, is dishonest and would cause vastly exaggerated losses from these IP thefts.
Another contributing factor may be that some hacks are actually spoofs from America’s own cyber agencies. These cyber agencies are known to be capable of creating hacks that appear to come from China but really originate from American cyber agencies.
ESTIMATE ON THE NUMBER OF SUCCESSFUL HACKS
US government agencies generally do not publicly state the number of successful hacks by state sponsored hackers. However, the Canadian government does provide such an estimate15. The Canadian government's computer networks have been hit by state-sponsored cyber attacks about 50 times a week and at least one of them would succeed. That acknowledgment from the Communications Security Establishment (CSE), the secretive agency charged with preventing such attacks, is a rare glimpse into the scale and frequency of attempts by foreign powers to penetrate federal government systems. "Between 2013 and 2015, the Government of Canada detected, on average a year, more than 2,500 state-sponsored cyber activities against its networks," says the report.
Since Canada has a population and economy about 1/10 that of the United States, it can estimated that the successful cyber attacks on the US is about 10 times that of Canada’s. Therefore we estimate that the US suffers about 10 successful attacks per week or 250 successful attacks per year on the US government system.
We also estimate that the number of business that suffered losses is about 2 times the 264 business that reported losses. We arrive at that number because the number of large business in the US is around 16,000 and the above chart referred to 8000 businesses.
Thus, we estimate the number of successful hacks on US government systems as 250 per year and the number of successful hacks on US businesses as 528. This adds to is 778 successful hacks on the United States. Since China is alleged to commit one half of the hacks, then China’s hacks would number 389. China is also accused of stealing from $300 billion to $600 billion each year. Simple math by division shows that each successful hack from China cost the US anywhere from $771 million to $1.54 billion. In other words China on average successfully hack the US once a day, and the hack result in more than a billion dollars in losses. That is a ridiculous large sum that China is alleged to steal each day. The US government needs to explain this unbelievably large sum for each hack, otherwise the US accusations should be pared down to realistic levels. It is even possible that the US government has exaggerated the theft losses by more than a thousand fold!
STEALING TECHNOLOGY NOT SO EASY
Consider the easy way to steal IP: find a US patent on a good invention and copy it. First, a rouge Chinese company would have trouble with the English language that includes a lot of technical legalese. After spending a lot of resources translating and understanding the patent, the rogue company is now ready to make a prototype. The supply sources for parts and many of the parts material are unknown quantities. After making several prototypes, it is found that none of them work. The rogue company guesses that there are too many uncertainties and gave up after spending an inordinate amount of time and money. Unbeknownst to the rogue company, there is another important factor: the patent left out some crucial information that makes the device work. This is fairly standard practice among inventors who patent their inventions.
Now consider the situation where a hacker is interested in obtaining the design of a high tech helmet. He finds that the cyber defenses are extraordinary robust. Somehow he hacks into the file for the blueprint for one of the 2,000 parts of the helmet. He finds out that manufacturing of this part requires a specialized machine tool of unknown design that probably costs a small fortune to make. He also finds out that this part requires an insert made by a subcontractor. Now the hacker must hack into the computer system of the subcontractor. It turns out the main company uses hundreds of subcontractors. The hacker spends huge amounts of time only to obtain a blueprint here and a blueprint there. Where is the hacker going to find a buyer? Who will ever buy these worthless and maybe illegal blueprints? These blueprints can only be understood by the engineers who made them and who know the context of the part in relation to the whole system. In the end the hacker spends huge amount of time to fill up his memory with tera bytes of worthless data. In fact, the US should encourage hacking by its adversaries in order to tie down the adversaries’ computer experts.
Sony Corporation makes it a point not to patent any of their technology. Anyone can copy a Sony machine without legal challenge but no one does it. This is because Sony parts are made using proprietary and very expensive machine tools that is not available to outsiders. Yet, the American myth is that once Chinese hackers hacked a blueprint then the technology is lost. That is a deliberately misleading myth that is mostly false.
The above examples show that for high technology machines it is generally much easy and much more cost effective to perform R&D and create your own machine from scratch than to try to make a successful copy that works like the original. However, the myth propagated by the US is that just stealing the blueprints will cost the US billions in stolen research.
The true and tested way to acquire technology is to hire expert engineers working on the technology or better yet, buy the entire company related to the technology. Chinese companies have acquired some technology this way, but this is legal and a fairly standard procedure among tech companies.
Now consider the case of “forced technology transfer”. Generally, a US company that wants to manufacture in China must work with a Chinese partner. Say a name brand US automobile muffler company wants to manufacture in China. Initially the US company has the Chinese partner company make only the sheet metal for the mufflers. After a year of successful cooperation and greater trust, the US company ships to China the full machinery to make the mufflers from start to finish. The US muffler company will want to share its technology as a good will gesture, and because its impossible to keep trade secrets when all your workers and engineers are Chinese. At this juncture, the Chinese company can secretly copy the machinery and make mufflers at another factory. However copying the machinery is not easy and the Chinese company will find out that they cannot sell their mufflers because they don’t have the brand name and don’t know the market. For these reasons and because the Chinese company is already making good profit with its American partner, the situation of stealing as described, almost never happens! Yet, this “forced technology transfer” situation is implied to be an everyday occurrence by the US government report1.
NATIONS WITH LARGE R&D PROJECTS DO NOT NEED TO HACK
In 1999 Dr. Wen Ho Lee was accused of stealing nuclear secrets for China16. Supposedly, the whole “crown jewel” of US nuclear secrets was transferred to China. The US government was not able to obtain real evidence against Dr. Lee and the case was flawed due to aggressive ethnic profiling. The case was dropped and Dr. Lee was exonerated. More recently, the FBI has accused 2 Chinese hackers of stealing research data on Coronavirus vaccine research in the United States14 to order to advance China’s race to develop the vaccine.
It appeared that the US all too often is overly enthusiastic in accusing China of stealing research on big science and high technology. Russia is often at the cross hairs as well. Yet, the US overlooked an important element. Those countries that have huge R&D programs, generally, DO NOT need to steal technology and methodology from the US. The reason is that each nation has invested huge resources on a technology and will not change the R&D direction or replace machine tools just because they have information on the US development. Information obtained through spying are to follow the progress and direction of the American programs, but are generally NOT to copy technology! Americans tend to over rate themselves and think that everybody wants to copy American technology no matter how far along the adversaries are.
SOME LESSONS FROM THIS STUDY
One obvious lesson from this study is that the US overstates its case against China with very little evidential data. China got rich from hard work and large savings, NOT from theft, period!. The USTR report1 does list many cases of actual theft and could have used these cases as solid evidence of industrial theft. Yet, these relative few cases are used to justify the claim that China stole the whole industrial and technological base of the United States. For example, the FBI chief slams Chinese cyber attacks on U.S., calls it ‘one of the largest transfers of wealth in human history’17. Such extravagant claims undermine the US position as an honest participant. The main political aim of these accusations is to contrast the democratic nature of the United States versus the one party autocratic nature of China. One way to look at the conflict is that the US allegedly follows the rule of law while China allegedly works outside the law. However, it is painfully obvious that when one side accuses the other without strong evidence and assumes guilt without a hearing, that the accusing side does not act in accordance within law or with a sense of fair play. Despite this lack of a sense of fair play, the accusing side (the US) never seems to contemplate the slightest self reflection.
While it is true that the United States is a democracy, few point to the parts of its government that is as opaque and as secretive as any non-democratic government, its spy agencies. Under the lead of its spy agencies, the US government uses the excuse of “national security” to withhold information, sanction entities and nations, and close down businesses and embassies. The recent attacks on Chinese companies Huawei and TikTok used the excuse of “national security” though no evidence of wrong doing by these companies can be found.
Another political aim is to play up the anti-China card during an election year. The party that is the most anti-China will supposedly benefit from more votes.
The economic aim is to improve the balance of trade with China by forcing China to acknowledge its supposed unfair trade practices. Yet, without providing good evidence for the alleged bad behavior, the US is playing a losing game.
Yet, for all the dearth of evidence, it is clear that there is a strong and emotional backlash against China. After reading many dozen of articles one gets the impression of an undertone of hate and racism. Apparently China’s leaders underestimated America’s reaction to an up and coming power. Despite America’s claim that it is an open society, a rational society and a post racial society, America still retains some attitudes from centuries past. The deference to black people seems to derived more from a fear of rioting than from a true respect for black people. For Asian Americans, there is often blatant discrimination against them. For Asian nations, they are tolerated if they play second fiddle, but if they don’t play by the rules set by the West, then they are seen to be “uppity” and must be put back in place.
Not only did China’s leaders underestimated America’s reaction, but they appeared to fall for this line from the US: That China is a thief. This is quite evident when China almost never asks for proof of its alleged wrong doing. China just denies this and denies that, but does not really defend itself. It is almost as if China believed the press statements from the US (after all the US has a “free press”). In reality, the so called “free press” of the US is highly self censored and highly selective in its reporting.
One of the few Chinese representative that actually demanded evidence is Mr. Cai Wei, the Consul General of the Houston Chinese Consulate. Despite being given 72 hours by the US government to close the consulate, Consul general Cai Wei says the office is open and will continue to do so ‘until further notice’. He wanted to keep the office open until the US government furnishes proof of wrong doing18. The consulate was accused by the US government of stealing IP from nearby universities and of espionage. He was countermanded by Beijing and the consulate was closed as demanded.
All these points are not to say that China is all innocent. China presents an image of a total surveillance state and Chinese censors work round the clock to censor news and discussions that are not permitted. If the US accuses China of multiple state hacking events when actually only a few non-state sponsored hacking events took place, then it is not fair. But because of heavy censorship, Chinese leaders may actually believe in the US accounting rather than the Chinese accounting. The best defense against American accusations is to demand proof for the accusations.
On any particular case, whether China is innocent or guilty, Westerners tend to view China as automatically guilty. Part of it has to do with the legal system in China. China has said that it is a nation ruled by law. However, the laws in China are generally written to be vague. This vagueness in the laws allows the judges to interpret each case to favor whoever the judge wants to win. This situation can be greatly improved by re-hashing old laws to be more specific and making new laws very specific. China has made a small step in this direction when it recently passed a law with specific guidelines on protecting intellectual property and forced technology transfer19, giving more specificity to previous laws.
As the title of this article indicates, the subject is not limited to China, but is related to the whole world and to the direction of justice in the world. Many people who read this article will be shocked by the vast discrepancy between the actual facts and the purported facts given out by the US government. That the world’s foremost economic, military and cultural power is so cavalier with facts should wake people up to the dangers to the world that this cavalier attitude entails. An example is President Trump’s Executive Order to cut funding for the WHO (World Health Organization) for perceived favoritism toward China, without solid evidence20. To prevent the world’s further slide into exaggerated claims, made up accusations, and even wars, the world’s people must forcefully demand evidence from their governments and especially from the most powerful of governments, the United States. If no evidence is provided then no cooperation by the world’s people with the accusing power can be expected.
REFERENCES
1. https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF
3. https://edition.cnn.com/2020/07/30/tech/tech-antitrust-hearing-zuckerberg-china/index.html
6. https://www.statista.com/chart/13335/where-global-tariffs-are-highest-and-lowest/
7. https://www.reuters.com/article/us-usa-trade-china-subsidies-exclusive-idUSKCN1Q32X6
8. https://www.thebalance.com/government-subsidies-definition-farm-oil-export-etc-3305788
9, https://www.nytimes.com/2020/01/13/us/politics/treasury-china-currency-manipulator-trade.html
11. https://www.computerworld.com/article/2488962/nsa-hacked-into-servers-at-huawei-headquarters--reports-say.html
12. https://www.bbc.com/news/technology-51112232
14. https://www.msn.com/en-us/news/politics/fbi-director-unleashes-on-china-in-speech/ar-BB16rXE7
15. https://www.cbc.ca/news/politics/cyber-attacks-canada-cse-1.4378711
17. https://www.cnbc.com/2020/07/07/fbi-chief-slams-chinese-cyberattacks-against-us-hudson-institute.html?__twitter_impression=true&recirc=taboolainternal
20. https://www.bbc.com/news/world-us-canada-52289056
Bio: Manuel Lee is an investigator in psychology, history, physical science, and spiritual science. Decades of work integrates to the idea that important concepts missed by society is really in front of our eyes. For example, pain in the body is magnified and prolonged by the fear and avoidance of pain. Once the person is willing to face the pain, relief happens. Another integrated idea is that often a simple interpretation of history is thrown out in favor of a biased interpretation favored by a particular personality. Once these simple ideas are known, society can advance with less confusion.
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