Regan: The NSA and dangers of a trade war with China

Trish Regan, USA TODAY

(Photo: Handout)
Trade wars, like cold wars, do not start with a shock-and-awe attack or a declaration of combat. Trade wars build slowly. A series of small battles escalate until they evolve into entrenched aggression.

The United States may be on the brink of a trade war with a familiar rival — China — for unfamiliar reasons. Previous economic disputes with the world's second-largest economy have been about narrower issues: accusations of currency manipulation or anxieties about what the Chinese might do with their $1.2 trillion in U.S. debt.

REGAN: Taxes spur foreign corporate 'marriages'

Today's conflict is more insidious. Recriminations of cyberspying — by both corporations and intelligence agencies — threaten to hobble the American technology industry by choking it off from the giant Chinese market. The end result could be a protectionist trade environment unlike anything we've seen in decades.

The conflict has gone into high gear since the Department of Justice indicted five members of the Chinese army on charges of cyberespionage against companies such as Westinghouse and U.S. Steel. China responded by accusing Cisco of aiding American cyberspying, banning the use of Microsoft's Windows 8 operating system and lobbing accusations that Apple, Google and Facebook cooperated in a secret U.S program to monitor China.

This is a complicated, two-front war. Both players accuse the other of cyberespionage to gain a business advantage, and cyberspying to gain an advantage in national security. In his first televised interview since taking the job, the director of the National Security Agency, Admiral Mike Rogers, told me on Bloomberg TV that the NSA played a role in the indictment of the five Chinese hackers. He downplayed concerns of worried Silicon Valley CEOs such as Cisco's John Chambers, claiming the negative impact on U.S. tech exports will be minimal, and that "competition and the quality of what we do will win out. It's not by chance that the U.S. enjoys significant advantage in this market sector. It's because of what we're able to produce."

REGAN: Italy to include sex, drugs in GDP

For anyone who believes that quality alone will ensure the success of American tech products in the Chinese market, look at China's Xiaomi. This 4-year-old Apple-emulator sold 18.7 million smartphones in China last year, just shy of the 23.1 million iPhones that Apple sold in that nation. If a young, homegrown upstart such as Xiaomi can nearly match Apple's sales in China, U.S. tech firms have something to worry about. It's clear American gadget makers will see their Chinese market share erode in a brutal trade war, no matter how shiny and innovative U.S. phones may be.

The tech community knows this. The CEOs of Microsoft, Google, Facebook and others are now calling on lawmakers to curb the NSA's practices.

So begins a tit-for-tat spat that will only result in less business for all, and the NSA is on the defensive. Rogers' explanation is that every nation engages in surveillance activity: "I don't care if it's China, I don't care if it's Russia. Every nation tries to do (this) for the well-being of its citizens."

It may not be that simple. If other countries ban U.S. products for security reasons, then who are we going to produce those products for? We live in a global economy. The U.S. needs China as a loyal customer to grow.

This is why American tech companies are smart to worry that the NSA's spying will result in protectionist trade barriers. The U.S. economy is struggling to gain momentum, just as China's teeters on a slowdown. This is not the moment for a trade war — especially one that's really about trust.