December 20, 2018 / 9:17 PM / a month ago

Breakingviews - U.S. cyber allegations risk bigger rift with China

Chinese and U.S. flags are set up for a signing ceremony during a visit by U.S. Secretary of Transportation Elaine Chao at China's Ministry of Transport in Beijing, China April 27, 2018. REUTERS/Jason Lee

WASHINGTON (Reuters Breakingviews) - The latest U.S. cyber allegations risk a bigger rift with China. The administration of President Donald Trump indicted Chinese hackers while its allies condemned economic espionage. The moves, like the recent detention of Huawei’s chief financial officer, are ostensibly separate from trade talks, but Beijing won’t see it that way.

U.S. authorities have unleashed a crackdown on Chinese intellectual-property thefts. In October, U.S. prosecutors for the first time succeeded in extraditing a Chinese intelligence officer to America for stealing trade secrets from GE Aviation and others. In November, Chinese state-backed chipmaker Fujian Jinhua was indicted for allegedly stealing designs from U.S. rival Micron Technology.

The latest charges come on the heels of authorities calling Chinese hacking a threat to the U.S. economy. The Justice Department on Thursday accused two Chinese nationals connected to Beijing’s Ministry of State Security of stealing technology and data from companies involved in financial services, oil and gas, and aviation. U.S. officials may also impose sanctions related to the case. The UK and other U.S. allies condemned the alleged Chinese effort.

The move could interfere with a U.S.-China trade détente reached earlier this month. Trump and Chinese President Xi Jinping agreed to put further tariffs on hold while they tried to hammer out a deal. But other U.S. actions keep threatening to derail the talks.

That’s why Trump told Reuters he might intervene in the Huawei arrest to aid trade negotiations. Meng Wanzhou was detained in Canada earlier this month and U.S. authorities are seeking extradition for charges related to Iranian sanctions violations. Despite the arrest, Beijing moved forward with pledges to resume purchases of U.S. soybeans and cut auto tariffs.

But a Chinese backlash against America is growing, with the Huawei arrest prompting calls for a boycott of Apple’s iPhone. Other moves to strike at China could raise tensions even further. The White House has been working on an executive order to ban Huawei and Chinese rival ZTE from selling products in America. The companies are already largely shunned and many firms, including AT&T and Sprint, have already gotten rid of Huawei gear.

Beijing could retaliate by detaining American executives or target U.S. firms. It could also cancel trade talks, which would roil already down markets. The Trump administration may have to choose its priority target.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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