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U.S. Steel Says China Is Using Cyber Stealth To Steal Its Secrets

International trade disputes used to be relatively simple.

One country would build up an industry to create jobs, and then dump excess products in another country at below-cost prices. Competitors facing unrealistically cheap imports would file "anti-dumping" complaints to seek government-backed protections.

That's what happened decades ago when U.S. steel companies got fed up with Japanese makers of steel pipe. In 1978, the U.S. International Trade Commission issued a "cease and desist" order to stop Japan's "predatory pricing."

Ah, but those were simpler times.

This week, U.S. Steel Corp. filed a trade complaint with the ITC, starting off with a traditional pricing complaint: "The Chinese industry has formed a cartel that sets purchase and sale prices, and controls production and export volumes to target export markets."

But then it added a 21st century twist: "The Chinese industry has used its government to steal U.S. Steel's closely guarded trade secrets and uses those trade secrets to produce advanced steel products it could not make on its own."

The Pittsburgh-based steelmaker says its Chinese rivals must be investigated. "We will use every tool available to fight for fair trade," U.S. Steel CEO Mario Longhi said in a statement.

The complaint was filed with the independent agency charged with reviewing complaints and enforcing U.S. trade policy. It has 30 days to decide whether to investigate charges; usually, it says yes.

China's Commerce Ministry said that the complaints "have no factual basis," and it urged the ITC to reject U.S. Steel's case.

U.S. Steel's tough language may add to the rising trade tensions between China and other major steel-producing nations. The U.S. government already has hit Chinese steel imports with new duties this year, and it has launched an investigation into China's alleged overproduction of aluminum.

Last week, officials from the U.S., Europe, Japan and other steel-producing nations met in Brussels to push for a multinational, comprehensive agreement to cut steelmaking capacity. But China wouldn't go along with such plans.

So now U.S. Steel says it is pursuing "countervailing and anti-dumping cases and pushing for increased enforcement of existing laws."

American steel companies are agitated about China because they already are facing lots of problems. For example, tighter fuel standards are pushing car makers to switch to lighter materials. And energy companies are buying a lot less pipe for drilling.

So U.S. companies want to focus on more advanced products, such as high-strength stainless steels. But changing over to making new types of steel is expensive. Having competitors hack into — and steal — valuable research would be very damaging.

In its public complaint, U.S. Steel did not provide evidence of hacking by Chinese officials, but said a 2011 hack fit "the pattern of previous attacks that the Chinese government conducted to benefit their state-owned companies. The attack circumvented the technological safeguards U.S. Steel uses to protect its trade secrets, and stole several gigabytes of valuable research data on advanced steels."

If the ITC decides to go forward, the investigation may take a while. That's because the agency is being asked to, in effect, weigh three separate issues: price fixing, false labeling to avoid duties and theft of trade secrets.

Derek Scissors, a resident scholar and China trade expert at the American Enterprise Institute, said that while U.S. Steel has not yet presented public evidence, it would be no surprise if China turned up guilty of hacking.

When it comes to stealing trade secrets, "they do it all the time," Scissors said. "There's no defense" for such behavior, he added.

Scissors says U.S. Steel also probably would be able to prove that China is flooding markets with cheap steel. "They have too much [steelmaking] capacity and it looks like dumping," he said of the import surge. However, he pointed out that cheap steel helps other U.S. manufacturers hold down the cost of goods made with steel — like autos.

"It's not necessarily bad for the country," he said of Chinese steel. "Ford benefits from dumped steel."

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