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A Durable U.S.-China Trade Accord Requires Agreement on Cybersecurity

March 1, 2019 in Economics

By Daniel J. Ikenson, Huan Zhu

Daniel J. Ikenson and Huan Zhu

Hopes are high that the United States and China will soon reach a deal to suspend the trade war. Recent reports suggest the sides are moving toward agreement on six sets of issues: cybertheft and forced technology transfer; intellectual property protection; services market access; currency interventions; agricultural market access; and non-tariff barriers to trade. Considering that measures taken by both governments in the name of cybersecurity have created recurring frictions in the bilateral relationship, the absence of an agreement in that realm would be a major oversight.

Cybertheft, cyberespionage, and cyberterrorism are all problems that can be mitigated by effective cybersecurity measures. But without agreement as to what constitutes legitimate cybersecurity policy, Washington and Beijing will continue to act unilaterally and take shotgun approaches that may mitigate some risk, but at the cost of thwarting trade, opportunities for collaboration, and technological progress. Agreement, now, on how to assess and manage cyber risks and respond to security breaches would go a long way toward providing real security and reducing frictions in the relationship that could spark the next trade war.

In the name of protecting critical economic and national security infrastructure from cyber malfeasance, the United States has adopted some absolutist policies. ZTE and Huawei have recently become household names that Americans may associate with the trade war, but these Chinese information and communications technology (ICT) companies have been in the crosshairs of various U.S. government agencies for many years.

[pullquote]These laws may require intrusive security reviews, the breadth and depth and general standards of which remain unclear, as Beijing considers the costs and benefits of alternative approaches.[/pullquote]

The U.S. government has advised U.S. telecommunications firms that if they wish to participate in federally-funded infrastructure build- outs, they should purge their supply chains of Chinese ICTs. On a few occasions, the Committee on Foreign Investment in the United States (CFIUS) raised security concerns over prospective acquisitions of U.S. companies by Chinese ICTs. During the past several years, U.S. appropriations legislation has included provisions to prevent certain federal agencies from procuring or using ICT products made by Chinese companies. The recently enacted National Defense Authorization Act precludes universities and other research institutes that receive federal funding from purchasing Huawei equipment. And, reportedly, President Trump has given consideration to an executive order that would ban Huawei and ZTE products, wholly, from the United States as a matter of national security.

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Source: OP-EDS

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