There Will Be Blowback – Forbes

Caption from US State Dept. "Announcement"

The publication of the Expansion of the Clean Network to Safeguard Americas Assets coming from the Secretary of States office yesterday is an example of posturing and saber rattling that will result in zero impact on intellectual property theft, potentially massive wasted expenditure, and more government encroachment on free markets. It will not end well.

Do not let anyone forget that the new era of digital mercantilism was kicked off in 2013 due to the activities of the National Security Agency. Thanks to Edward Snowden we learned that the NSA, for years, had been tapping undersea cables, forcing major US companies like Apple, Microsoft, Yahoo, Youtube, Skype and AOL (See PRISM slides.) to secretly funnel data to them, tapping communications in major telecom hubs, and developing exploits for HP, Dell, Cisco, Fortinet, Juniper, and Huawei gear.

The reaction from around the world was swift. Trust in US technology products was degraded. The EU reacted strongly with condemnations coming from world leaders whose cell phones had been compromised by the NSA. The EU passed GDPR in part as a reaction. The EU is also attempting to build an alternative cloud platform, Gaia X., to counter the dominance of AWS, Azure, and Google for modern computing infrastructure, despite forcing all of those platforms to build data centers in Europe to keep data in Europe (and, incidentally, give law enforcement and intelligence agencies their own jurisdiction to control and possibly monitor data.)

There has always been an effort on the part of governments to gain control of the means of production, apart from a short period post-Adam Smith, and pre-WWII, when capitalism had a brief moment in the sun. In those days governments were happy to tax output but did not create Soviet style command economies and industrial policies. During the late 90s there were some that thought the internet would free us from national boundaries and restrictions on trade. Any manufacturer of any good could launch a website with a shopping cart and sell anywhere in the world. If the product was digital, like a blog post, ebook, or video, it could be transferred over the internet free of taxes, import duties, or censorship. Those days and that dream are long gone.

Mercantilism according to the Wikipedia entry is:

Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, tariffs and subsidies on traded goods to achieve that goal.

Each new administration in the US tries its hand at protecting US industry sectors, from wheat, to sugar, to textiles, to manufacturing. This turns into votes for the politicians and gives the manufactures the ability to raise prices without investing in efficiency and quality.

There is one industrial sector that the US dominatestechnology. Cisco, Juniper, Arista, and others completely own the market for networking gear while engaging in healthy competition with each other. The positions of Google, Apple, Microsoft, Facebook, and Amazon, are demonstrated by their market caps. With a few exceptions software is dominated by US tech companies.

Keep in mind that practically all technology hardware is produced in China for American companies. There is no need for an industrial policy to protect these companies and massive harm could come from anti-China posturing.

The Stick it to China memo has five bullet points and I am just going to assume there are no plans behind them:

-Clean Carriers. This bullet point seeks to bar Chinese telecom providers from the US. Would it be a bad thing if they did move into the US? What if a Chinese carrier delivered 10 gig internet for $10 a month? Sign me up. I dont trust any carrier and everyone should protect themselves from the monitoring of your activity that they engage in by using end-to-end encryption and proxies.

-Clean Store: To remove un-trusted applications from U.S. mobile app stores. This is transparently a policy to back Trumps tweets about TikTok and would be a massive encroachment on Apple and Googles ability to continue to dominate the market for apps.

-Clean Apps: To prevent untrusted PRC smartphone manufacturers from pre-installing or otherwise making available for download trusted apps on their apps store. Leaving aside the internal contradiction, this is aimed squarely at Huawei which sells some of the lowest cost smart phones in the world. I dont trust any app from any store and neither should you.

-Clean Cloud: This section is meant to bar US organization from storing data in Chinese cloud providers, specifically calling out Alibaba, Baidu, and Tencent. That could be disastrous for companies that sell into the single biggest market in the world, China. Once again, never trust any cloud provider. Encrypt all of your data all of the time.

-Clean Cable. To ensure the undersea cables connecting our country to the global internet are not subverted for intelligence gathering by the PRC. We know this is done all the time by the NSA to everyones undersea cables. Other countries do this too. It is completely impossible to protect tens of thousands of miles of cables that lie deep in the ocean. The simple solution to undersea tapping of cables is, you guessed it, encrypt all the data all the time.

Thankfully this ridiculous posturing by the State Department will be short lived. On January 20, 2021, a new Secretary of State will be sworn in and we will return to sane policies. But we must push back whenever we can against the rise of digital mercantilism.

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There Will Be Blowback - Forbes