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China broke hacking pact before new tariff fight

Source code for Snake game by Patrick Gillespie. Illustration: Lazaro Gamio/Axios

One big fear about President Trump's tariff fight with China is that Beijing would retaliate by resurrecting its campaign of stealing patents, manufacturing processes and other trade secrets from U.S. companies. The Obama administration mostly shut that down in 2015.

Reality check: But Dmitri Alperovitch, co-founder of CrowdStrike, says China didn’t wait for the latest controversy to revive its intellectual-property hacking program — it has already been ramping up efforts ever since Trump took office. “We’ve seen China expand its hacking for IP throughout 2017,” Alperovitch said.

The big picture: Until 2015 China’s state-sanctioned U.S. hacking operations regularly stole trade secrets to benefit its businesses.

  • At that time, tech IP theft cost the U.S. economy $300 billion annually — with China responsible for 80%, according to testimony from Michelle Van Cleave of the U.S.-China Economic and Security Review Commission.
  • The Obama administration countered the threat by indicting the Chinese military hackers leading the charge in 2014 and threatening sanctions in 2015. Finally, in September 2015, China formally agreed to stop hacking the U.S. for economic espionage.

“It never went entirely away, but the reductions were significant,” said Alperovitch. The current uptick, he added, appears to target tech companies, law firms and medical manufacturers.

The numbers (then): FireEye, a competitor of CrowdStrike, saw a continuous decline in attacks throughout the Obama effort. Before the indictments in 2014, the company saw around 60 attacks a month targeting IP from China. After the indictments, that number dropped to under 40. With the threat of sanctions, it dropped to under 10 a month.

  • But, said Alperovitch, Obama may have benefited from a reorganization in China underway at the time. China was physically relocating its hackers to centralize them, and also cracking down on government corruption — which may have given officials additional incentives to promote the hacking.

The bottom line: Trump's tariffs are meant, in part, to counter intellectual property theft, but Alperovitch thinks the best response would be targeted sanctions. “What Xi really feared from Obama was sanctioning the companies that benefitted from the theft,” he said. “That’s still an option.”