Every U.S. administration, dating back to President H.W. Bush has struggled to address the threat of Chinese trade theft. But a growing sense of urgency kicks in as American businesses start hemorrhaging trade secrets and entire product lines start vanishing to Chinese copycats. Just as the Obama Administration is set to do something about it, Edward Snowden shifts the narrative back onto the United States. For years, the U.S. fends off its own accusations of hacking. But then China goes for the mother lode. And creates an opening for Obama to strike a deal with his Chinese counterpart, Xi Jinping. In Episode 5, host and former New York Times cybersecurity reporter, Nicole Perlroth reveals the ins and outs and backroom dealings of the cyber detente nobody saw coming.
Chapter 1: What are the U.S. concerns about cyber threats from China?
I raised once again our very serious concerns about growing cyber threats to American companies and American citizens. I indicated that it has to stop. The United States government does not engage in cyber economic espionage for commercial gain.
For years, Chinese IP theft was something most US businesses just swallowed with a wink and a nod towards profit. As for the US government, they took a gamble. They hoped that as China's economy grew and the internet took off, China would have no choice but to adopt international norms, improve its track record on human rights, and eventually stop hoovering up all our IP.
But hack after hack made clear just how wrong they were. And then this happened.
We have jointly affirmed the principle that governments don't engage in cyber espionage for commercial gain against companies. That all I consider to be progress.
Chapter 2: What was the cyber agreement between Obama and Xi Jinping?
On September 25th, 2015, Obama and Xi Jinping stood side by side in the Rose Garden and announced the cyber detente nobody saw coming.
What I've said to President Xi and what I'd say to the American people is, the question now is, are words followed by action?
What you just heard was Obama announcing that Xi Jinping had agreed China would stop hacking for commercial gain. Well, technically Xi and Obama agreed to stop hacking for commercial gain, but this was no doubt a better deal for Obama than it was for Xi. Nobody saw this one coming.
Not me, not the white hats who were getting called into Chinese cyber attacks all over the country, not even the government officials who pulled it off. So how'd we get here? Well, as Chinese cyber espionage ramped up, so too did the government's agonizing of what to do about it. I'm Nicole Perleroth, and this is To Catch a Thief.
Chapter 3: How has U.S. policy towards Chinese IP theft evolved?
Now, here I should step back and note there had been government efforts, serious efforts, to rein in Chinese IP theft before. Long before Aurora, even before the dawn of the commercial internet really, the first Bush administration had put China on notice.
So, I think folks seem to forget that in 1991, George H.W.
Bush brought a Section 301 investigation against the Chinese government for theft of intellectual property and violations of copyrights and other things, and used that to force the Chinese government to a negotiating table so that they would actually start to abide by international rules around respecting copyrights and respecting intellectual property.
That was Matt Turpin, who served as China director at the National Security Council in Trump's first administration. And before that, as China advisor to the chairman of the Joint Chiefs of Staff under Obama. For those not well-versed in the minutiae of trade law, the Section 301 investigation is the first step in imposing tariffs that would have penalized China for its blatant IP theft.
And this was a big deal at the time. But when it came down to actually enforcing anything, that was another story.
The Bush administration got to a negotiated settlement in 1991. and then chose not to impose sort of retaliatory tariffs on what Beijing was doing. Beijing agreed to fix its things. And then essentially four years later during the Clinton administration, the Clinton administration is back in 1995, renegotiating compliance on those agreements, right? That Beijing is not compliant.
And essentially that is the story that we've been dealing with from then on.
Every time the Bush and Clinton administrations debated actual penalties in the form of tariffs or sanctions, there were always people in the room who'd argue back. It'd be better to kick the can down the road. American businesses were making too much money in China to disrupt the status quo. And back then, policymakers still held out hope for a new China.
That once they acquired a certain level of wealth and economic maturity, once the internet took hold, China would cut out the bad behavior, stop stealing RIP, lay off the internet crackdowns, and inevitably democratize. This late 90s, early 2000s optimism was perhaps best summed up by this guy.
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Chapter 4: What was the impact of Edward Snowden's revelations?
That was John Carlin, who led the Justice Department's 2014 indictments of the PLA members who'd hacked us at the New York Times. And here's Jim Lewis again.
There was always this sense of, look, it's a trade. We know they steal from us, but we get a lot of money out of China. So right now the trade works in our favor.
Until it didn't. As Obama's first term came to a close, things started to look bleak. Whatever profits American businesses were making in China short-term were getting far eclipsed by the long-term hits they were taking from Chinese IP theft. By 2012, Obama decides he's had enough.
Tonight, I'm announcing the creation of a trade enforcement unit that will be charged with investigating unfair trading practices in countries like China. There will be more inspections. There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders.
Our workers are the most productive on Earth, and if the playing field is level, I promise you, America will always win.
Obama makes moves, real moves, to level the playing field. One, the White House sets up an interagency task force whose sole mission is to start bringing IP theft cases to the WTO, the World Trade Organization, a necessary first step in banning Chinese products that relied on stolen American IP. And two, the White House starts building out its case to the American people.
They couldn't just start banning cheap Chinese goods, not if they expected to win the next election. The White House knew it would have to run the numbers. And this was critical because without a visceral understanding of just how swindled we were getting, Americans would never stomach the price hikes that would follow from banning cheap Chinese toys, vacuum cleaners, solar panels, and seeds.
And doing this math was no easy feat. Because, as we've now established, the IP theft victims were doing their damnedest to keep their hacks and losses under wraps. Plus, to really get an accurate tally, you couldn't just add up losses last quarter.
You'd have to include losses from future American product lines that were now vanishing in the face of Chinese subsidized copycats flooding the markets. So Obama sets up a bipartisan commission. He taps Admiral Dennis Blair, his former national intelligence director, and Utah's former Republican governor and outgoing ambassador to China, John Huntsman.
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Chapter 5: How did the OPM hack escalate tensions with China?
Edward Snowden is now an international outlaw.
In hindsight, the timing here was stunning. Within 24 hours of Obama and Xi's face-off at Sunnylands, Edward Snowden started leaking out classified NSA documents revealing the extent of America's surveillance programs. Snowden's timing could not have been more convenient for China. It was the ultimate get-out-of-jail-free card.
The leaks gave the PRC the perfect whataboutism to push back and say, "'See? We're not the problem. The United States is the problem.'" And in the blink of an eye, the U.S. went from hacking victim to hacking assailant.
And the White House would spend the next two years fending off a relentless drip, drip, drip of damning accusations that it was embedded in everything from America's biggest technology companies to Angela Merkel's cell phone.
In Angela Merkel's summer press conference, the last one before elections, more than half the questions were about the NSA spy scandal.
Europe's anger over surveillance activity by the United States is just the latest foreign policy disruption created by leaked information from the National Security Archives.
The NSA analysts can target your email, can target your browsing history, your online chats without a warrant.
Chinese hacking just seemed to drift from public view. Occasionally, the government would do something to pull it back on the front page. Like in 2014, when John Carlin's team at the Justice Department indicted the PLA's hackers, ones with memorable online aliases like Ugly Gorilla, the ones who'd come for us at the New York Times.
But for the most part, it was Snowden and really the NSA that continued to occupy global attention. Chinese hackers had become a footnote. But then in 2015, the CCP overstepped.
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