The political tensions are reaching an unprecedented level. China, U.S. cyberwar escalates

The United States and China appear locked in a cybersecurity war — of mostly words — that's beginning to escalate.

Both the White House and Capitol Hill now explicitly criticize Beijing for failing to subdue the hackers and spies thought to reside within the country's borders. And there are real punishments on the horizon, as the U.S. government eyes trade penalties and other restrictions on China and its top technology firms.


There needs to be "a little pain and pinch," said Rep. Mike Rogers (R-Mich.) in an interview this week with POLITICO. The lawmaker, a longtime China critic on cybersecurity, was referring to both Beijing and the growing slate of other countries accused of spying or stealing from U.S. businesses.

( Also on POLITICO: Tech not waiting for gridlock to end)

The consensus in Washington is that China has become a hub for cyberhackers, who have targeted top U.S. businesses for trade secrets and other corporate or political intelligence. A controversial report from cybersecurity firm Mandiant even pegged some of the most significant attacks to an arm of the Chinese military, though the country's top representatives have denied the accusations.

The political tensions, though, are reaching an unprecedented level.

( Also on POLITICO: China rejects U.S. hacking claims)

The most recent example: a little-noticed provision in the latest government funding bill, which could make it harder for Chinese companies to sell tech products to a few federal agencies. Obama signed the continuing resolution into law this week. The White House did not comment for this story.

By some estimates, it's one of the first such cybersecurity-related provisions in a spending plan to exclusively target Chinese IT products — and it could be a sign of similar, broader efforts to come.

The measure also follows a series of aggressive statements from the Obama administration, which has focused intently over the past year at staving off hackers and shoring up the nation's digital defenses.

The White House's top security aide, National Security Adviser Tom Donilon, publicly criticized China in a speech to the Asia Society earlier this month. He urged the country at the time to "take serious steps to investigate and put a stop” to the cyberattacks.

The president raised cybersecurity in his inaugural phone call with new Chinese President Xi Jinping. Treasury Secretary Jack Lew, whose late-March visit to China marked the first such in-person contact in months, pressed his counterparts in Beijing gently over recent hacking accusations. And Gen. Keith Alexander, the head of U.S. Cyber Command, told reporters after a Hill hearing this month that he too stands by Donilon's high-profile remarks.

China has responded in part by turning the tables against the United States — and at least once, it has lambasted U.S. hackers for foul play in cyberspace.

Beyond the rhetoric, though, there's a brewing and complex debate in Washington over what exactly to do about the attacks. As they really just begin to confront the confounding China cybersecurity problem, both the White House and Congress must walk a precarious line — stopping the hackers, preventing diplomatic fallout and preserving U.S. trade.

Growing fears about security vulnerabilities in Chinese IT products, for example, has worried regulators reviewing Softbank's acquisition of Sprint Nextel — and it's possible the United States could try to oversee the company's network technologies to keep some Chinese products out of the system

Meanwhile, the controversial language in the latest budget stopgap is only an early solution to the broader, more intricate problem of supply chain security. The new rules, shepherded chiefly by Rep. Frank Wolf (R-Va.), are meant to ensure Chinese companies certify their independence from official Beijing before they can sell their goods to the Commerce Department, among others, during the life of the continuing resolution.

For now, the restriction could create significant, immediate headaches for companies like Huawei, which already has faced serious criticism in Washington for its alleged relationship to the Chinese government — a charge it repeatedly has denied.

A spokesman for the company said he believes Huawei doesn't fall under the category of firms that might be affected by the new rules. But a House aide who worked on the issue told POLITICO on Thursday that the language does, in fact, concern Huawei, as well as companies like ZTE and Lenovo — not "American companies who do assembling in China," the aide clarified, but those with "Communist Party committees in their management structures."

Both developments, to some, raise the specter of a possible trade battle. Without referencing either SoftBank or the continuing resolution, former Homeland Security Secretary Michael Chertoff touched on the difficulties of supply-chain security at an event Thursday, as he warned about the impact of strict IT policies on U.S. tech exports.

And as the White House and Congress think anew about ways to improve the country's digital defenses, there's also greater interest in pursuing the attackers and potentially levying penalties against cyberspace's most notorious malefactors and thieves. That's only opened the floodgates of congressional criticism focused on China.

Rogers, the leader of the House Intelligence Committee, raised to POLITICO the possibility of punishments levied both at Beijing and others that harbor or neglect to address local cyber criminals.

In the past, the lawmaker has suggested increased prosecutions or visa penalties as two potential forms of consequences. On Thursday, he told reporters it likely would involve strengthening the CFIUS process, the government's customary review of foreign acquisitions. He said the update could allow "this technology piece and supply-chain [issues] to be considered."

It'll be a tough slog for any of those efforts to move through Congress and become law. Still, it's not stopped others in Congress from nudging the Obama administration to push China even harder.

Two key House lawmakers Thursday wrote to the acting U.S. Trade Representative, urging the office to officially designate China as a violator of intellectual property rights. In doing so, Reps. Sander Levin (D-Mich.) and Charles Rangel (D-N.Y.) appear to seek new trade restrictions on the country.

At a hearing earlier this month, Rep. Dana Rohrabacher (R-Calif.), who leads a House Foreign Affairs subcommittee, repeatedly pressed a top State Department official on the administration's tepid response to China. "So far," Rohrabacher lamented, "the consequences [only] are statements of great concern."

The lawmaker added, "Those who are committing crimes against us [should] face serious consequences."

This article first appeared on POLITICO Pro at 4:50 p.m. on March 28, 2013.