China’s cyber spying ‘keeps a lot of US tech CEOs up at night’

Experts expect responses to come from two levels: the government in the short run and businesses in the long run.

For the government, “This is a ready-made excuse on a platter to say, ‘We need to do X’ because look at the terrible things the Chinese are doing,” Scissors said. “If the president gets angry, we could have more tariffs tomorrow, but I don’t think we’ll see that before the midterms.”

“The thing is, you’re running out of space to hurt the Chinese economically without hurting the U.S., too. You can hurt the Chinese more, but the thing is people don’t vote on that. They don’t say, ‘Well, he hurt me economically but he hurt the Chinese more,'” Scissors said.

On Thursday night Vice President Mike Pence delivered a highly critical speech about China and its efforts to undermine Trump, which immediately led to recriminations from Chinese officials.

There are two non-tariff steps that Scissor thinks are likely instead. The first addresses the problem externally by imposing export controls on American businesses that work in China, which is a “very obvious response to this event,” while the second works domestically.

“There will be people who want to throw a lot of Chinese workers and students out of the country. I’m not saying that’s going to happen, I’m definitely not saying it’s a good thing, but there’s people in the administration that want to do that, and I think this just made it more likely.”

Besides government action, Ives said, tech companies are also likely to take action to protect themselves.

The cost of manufacturing in China is so much less than in the United States that companies are forced to deal with the risk of espionage, Ives said, but as the cyber risk grows, it may change the calculus.

“The whole food chain is built on that premise, and that’s what makes it so much more complex than moving a facility from Beijing to Middle America,” Ives said. “In the near term that’s almost an impossibility that it would shift, but over the medium term you’ll actually see more manufacturing in the U.S. as a result of a concerted effort,” Ives said.

As the cyberespionage fight heats up and Trump’s trade war looks likely to increase, there seems to be no doubt that the world’s two largest economies have more conflict to come.

“If you look at U.S. and China tech and then throw 5G in it — look, it’s going to be like an MMA battle in the coming years,” Ives said.

By Edward McKinley, special to CNBC.com

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