Opinions

A Better China Trade Strategy


Memory chip parts of U.S. memory chip maker Micron Technology.

Memory chip parts of U.S. memory chip maker Micron Technology.


Photo:

kai pfaffenbach/Reuters

The Trump Administration’s China trade strategy has employed blunderbuss tariffs that hurt the U.S. and China. But the policy took a better turn this week with strong but targeted actions to punish alleged theft of U.S. technology.

On Monday the Commerce Department announced restrictions on the export of U.S. technology to Fujian Jinhua Integrated Circuit Co. after America’s

Micron Technology
Inc.

accused the Chinese firm of stealing its intellectual property. State-owned Jinhua is ramping up production of “likely U.S.-origin technology,” Commerce says, threatening U.S. suppliers of “essential components of U.S. military systems.”

IP theft usually goes unreported because victims fear retaliation and reputational damage, but Micron’s admirable stand against Chinese pilfering offers a look into Jinhua’s alleged methods, which were detailed in the company’s December 2017 suit filed against Jinhua in U.S. federal court.

In 2016 Taiwan-based

United Microelectronics
Corp.

signed a technology cooperation agreement to provide Jinhua dynamic random access memory technology (DRAM). Such memory chips are used in computers and smartphones, and Micron is one of three firms in the world that produces large quantities. Micron says UMC recruited two Micron engineers to steal IP. Micron tipped off police after it discovered the breach, and Taiwanese prosecutors indicted the two men in August 2017.

The Taiwanese indictment says one of the former Micron engineers accessed 931 files related to “the method, technology, process, and design of DRAM” days before leaving the company. He “transferred it to a USB storage device,” then “to two of his own laptops” and “also uploaded it to his Google Drive.” Micron calls it “one of the boldest schemes of commercial espionage in recent times.”UMC and Jinhua deny the allegations.

Enter the U.S. Justice Department, which on Thursday charged UMC, Jinhua, the two engineers and another former Micron employee for stealing trade secrets. Justice also filed a civil action seeking an injunction to stop stolen technology from being used. Attorney General Jeff Sessions estimated the cost of the alleged theft at as much as $8.75 billion.

Prosecutors this week also filed charges against 10 Chinese intelligence officers for hacking U.S. aviation companies. Mr. Sessions said five other cases related to stolen trade secrets are currently being prosecuted, and he announced a new initiative to investigate Chinese theft. “China—like any advanced nation—must decide whether it wants to be a trusted partner on the world stage,” Mr. Sessions said. “Our wish is to have a trusted partner.”

One reason IP theft typically goes unreported is that companies fear retaliation, and Micron is already facing some. UMC and Jinhua have sued Micron’s Chinese subsidiaries in Chinese court for patent infringement against Micron’s Chinese subsidiaries. The Fuzhou court issued an injunction in July preventing the Micron subsidiaries from importing or selling related products, which make up roughly 1% of the company’s annual revenue.

In May a Chinese regulator opened a price-fixing investigation into Micron and other foreign chipmakers. On Tuesday China’s Ministry of Commerce responded to the export restrictions by demanding that the U.S. “immediately stop its mistaken ways.”

The latest U.S. actions may get China’s attention more than tariffs have because Jinhua is part of President Xi Jinping’s Made in China 2025 effort to build a world-class semiconductor industry. Commerce’s earlier export sanction on China’s ZTE—which Mr. Trump retracted at the behest of Mr. Xi—would have crippled the phonemaker, which relied on U.S. components. Beijing has increased subsidies for Chinese firms like Jinhua, a startup that is backed by $5.7 billion in state funds.

The export restrictions and indictments also have the advantage of focusing on the culprits, while tariffs spread economic damage to innocent consumers. The actions send a message that the U.S. wants to punish theft and predatory behavior, not free trade and honest commerce. Beijing has to make a choice about the kind of trading partner it wants to be.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.