I've already written a bit about some amazing insights that can be gleaned from Al Gore's new book, The Future, about the impact that robo-sourcing and outsourcing - much of it to China - has on the ever-increasing problem of income disparity.

There can be no doubt that China has, and will continue to have, a large impact on the American economy.  Indeed, while this impact is often viewed through a negative lens, China's huge, expanding market could indeed be a positive for the American economy if some trends play out and specialized manufacturing comes back to our shores due to advances in 3-D printing / manufacturing coupled with increased Chinese skilled labor costs.  

Of course, this somewhat rosy scenario depends in large part on two very important factors: (1) the ability of American industry to maintain its technological edge and protect its intellectual property; and (2) the good will of the Chinese and their ability to play by the rules.

Can we depend on that?  

Confidence is certainly undermined by Information like this from The Future:

US intelligence agencies have long been assumed to conduct surveillance of foreign governments, including through cybertools to take information from computers if they have reason to believe that US security is threatened,  What is different about the apparent Chinese effort is that it seems to be driven not only by military and national intelligence concerns, but also by a mercantilist effort to confer advantage on Chinese businesses. "There's a big difference." says Richard Clarke, the former counterterrorism czar.  "We don't hack our way into a Chinese computer company like Huawei and provide the secrets of Huawei technology to the American competitor Cisco.  We don't do that."
There is no doubt that US companies are being regularly and persistently attacked. Recent research by the Aspen Institute indicates that the US economy is losing more than 373,000 jobs each year - and $16 billion in lost earnings - from the theft of intellectual property.  Shawn Henry, formerly a top official in the FBI's cybercrime unit, reported that one US company lost a decade's worth of research and development - worth $1 billion - in a single night.

I see the utility and short-term value of China. I even see some long-term promise. But isn't it time that we, as investors, corporations, and a nation, start thinking beyond next quarter and a little more strategically about China?

As we move forward and try to manage the growth and changes to our increasingly intertwined economies, technologies and business organizations...perhaps we should take a step back and examine the most basic relationship of all...who can we trust?

Jeffrey Ruppert

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