China Hacks America’s Steel Secrets — And Makes A Killing

Kevin L. Kearns President, U.S. Business & Industry Council
Font Size:

United States’ steel once dominated world production but a new, international leader has emerged and is breaking every rule in the book to maintain control over the global steel industry.

Starting at the end of the 19th Century, America’s steel producers took the lead in global steel output. It was a preeminence that continued for decades — with America’s steel industry accounting for almost a quarter of global steel production as recently as 1967.

Amazingly, even though the world steel market has grown three-fold over the past 40 years, America’s steel mills now produce only about two-thirds of the steel that they did in 1967. It’s been a hard fall for the domestic steel industry, especially given its complete reorganization in the 1980s and 90s to be more internationally competitive. Yet in the past two years alone, the U.S. steel sector has shed 16,000 jobs.

While some of the most recent downsizing in steel could be attributed to the after-effects of the Great Recession, a far more serious problem has been the deliberate, aggressive nature of China’s predatory steel trade. Not only have China’s steel mills benefited from massive subsidies and a continued undervaluation of the nation’s currency, but Chinese firms, with the assistance of the Chinese government, have also stolen the proprietary intellectual property of U.S. Steel Corporation, giving them access to technology for highly prized lighter, stronger steel.

Essentially, the cyber-theft of specialized trade secrets has created a perfect storm aimed at America’s steel industry. Chinese firms are already able to produce steel cheaply, thanks to billions of dollars in direct energy and other state subsidies, weak or non-existent environmental regulation, and a slave-wage work force. Thanks to intellectual property (IP) theft, they’re able to sell valuable steel products that were researched and designed by U.S. engineers. And now, when marketing this high-tech, American-designed steel to U.S. companies, they’re able to price it so low that U.S. Steel Corp. can’t compete against the very product it spent years (and millions of dollars) perfecting.

It’s a galling development for U.S. Steel Corporation—made all the more egregious because, so far, Washington has provided little in the way of justice or cyber-protection for companies wronged by such IP theft. Adding insult to injury, this hacking of trade secrets has wronged virtually every profitable sector of American commerce. A 2013 report from a bipartisan Commission on the Theft of American Intellectual Property estimated that the “unprecedented” theft of American intellectual property runs to hundreds of billions of dollars annually, with China emerging as “the world’s largest source of IP theft.” The FBI confirms the stunning scale of such hacking of private companies, with 95% of cases linked to Chinese espionage.

China, the clear and emboldened culprit, has extended its ambitions beyond commercial IP theft. The Washington Post reports that China’s cyber-spies are responsible for hacking into major defense companies—including Boeing, Lockheed Martin, and Raytheon—to gather data on weapons systems, aircraft designs, missile defense, and communications.

Such brazen intrusions also encompass energy technology research, including research at SolarWorld and Westinghouse Electric. China’s spies have become so adept at hacking that they now seek out the international trade strategies, bidding information, and proprietary data of most potential U.S. competitors.

All of these developments bring us back to the troubling case of U.S. Steel. Not only have America’s leaders failed to address the subsidies and currency manipulation that allow China’s steel producers to violate world trade law and undercut firms like U.S. Steel, but they’ve also left America’s data networks vulnerable to brazen security intrusions as well.

It’s critical that U.S. Steel has brought a trade case against the Chinese companies that have stolen their advanced steelmaking technology. But even winning such a case would be small compensation given the overwhelming market advantage for Chinese steel products due to overproduction and dumping of their products in world markets. And while important for U.S. Steel, a potential victory would do nothing to contain the much wider ‘strategic hacking’ that continues unabated across a wide array of industries, all part of China’s attempt to dominate advanced manufacturing industries.

The incoming Trump Administration has a lot of work to do. Not only does Washington need to stand firm against Beijing’s wanton violations of international trade laws, but the new administration and Congress will also need to devise a frontline cyber infrastructure that can repel the regular cyber-attacks breaching America’s proprietary resources. Punishing cyber-attackers and formulating greater counterintelligence capabilities is an urgently needed effort, and one that must be undertaken immediately to ensure the very survival of the nation’s beleaguered manufacturers.

Kevin L. Kearns is president of the U.S. Business & Industry Council, a national business organization advocating for domestic U.S. manufacturers since 1933.