Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



U.S. Confronts China's Hacking: Will Your Investments Be Collateral Damage?

The United States is calling China to account for its hacking efforts at companies like U.S. Steel (NYSE: X  ) . This is more than just a public relations stunt, especially for a country like China that takes its public image very seriously. What kind of consequences could this U.S. move have?

Who cares about a loser?
Why hack a steel mill that's lost investors over $25 a share over the last five years? Seriously, five consecutive years of red ink suggests that U.S. Steel isn't a big threat to China. But taking a look at why U.S. Steel is bleeding helps explain the allure.

The steel industry is in the midst of a supply glut. That's left prices weak, and companies like U.S. Steel complaining that foreign competition has been selling steel products into the U.S. market at prices below the cost of production. Such dumping is often prevalent from countries where the government has a big hand in industry. Like China.

(Source: EPA)

U.S. Steel has been involved in a number of trade cases in the steel industry to try to stop dumping. One of note was a 2009 case against China over tubular steel used in the oil and gas drilling industry. U.S. steel makers won that case, getting levies of nearly 90% imposed on Chinese imports.

U.S. steel makers have since brought a similar case against other countries. Although not tied to China, there are close links. For example, there's the concern that Chinese steel is going to other countries before being sold in the United States. Or, just as bad, Chinese exports are forcing other countries to dump their steel into the U.S. market.

The pot and kettle are both black
While the goal of China's alleged hacking is currently unknowable, getting a handle on U.S. Steel's trade case plans is certainly a solid reason for what U.S. Attorney General Eric Holder has called, "economic espionage." And U.S. Steel's computers were hardly alone in this, since the accusation involved a total of five U.S. companies.

China, however, has already called the bluff, basically saying that the U.S. is doing the same thing. In fact, the very public black eye involving U.S. spying on the leaders of supposed allies makes clear that the United States is about as pure as yellow snow when it comes to this type of stuff. And then there was the Stuxnet computer worm that helped delay Iran's nuclear ambitions—it was supposedly a U.S./Israel collaboration.

(Source: Dagmar, via Wikimedia Commons)

These examples aren't an effort to suggest we shouldn't be doing such things, just that China has a valid point. And this case raises tensions with the giant nation at a time when tensions are already running high. For example, China is openly feuding with U.S. ally Japan over control of a series of islands that just happen to have natural gas reserves around them.

A pound of flesh
Even if the U.S. government is right in bringing this suit, you have to wonder who loses. It's hard to believe that the five accused hackers will ever see the inside of a U.S. courtroom, so this is definitely about making a statement. But China can do that, too.

For example, the country just announced that it is banning the use of Microsoft's (NASDAQ: MSFT  ) Windows 8 on government computers. In an ironic twist the country is claiming that security concerns are to blame. However, if China actually jettisons Microsoft-based computers the software maker could miss out on an important upgrade cycle in the country.

Industry watcher Canalys explained to Bloomberg that, "China's decision to ban Windows 8 from public procurement hampers Microsoft's push of the OS to replace XP, which makes up 50 percent of China's desktop market." Piracy concerns aside, Microsoft looks like it just got dragged into a fight that it didn't start.

Change is hard
Chinese relations with the United States are destined to be difficult. This indictment is just one example of what will be ongoing tension between an up and coming global player and the current heavyweight. However, companies from U.S. Steel to Microsoft could easily get caught in the middle. Watch this public spat and pay close attention to the exposure, direct and indirect, you have to China in your portfolio.

You don't want to miss this
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And everyone from BMW, to Nike, to the U.S. Air Force is already using it every day. Watch The Motley Fool's shocking video presentation today to discover the garage gadget that's putting an end to the Made In China era... and learn the investing strategy we've used to double our money on these 3 stocks. Click here to watch now!

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 30, 2014, at 2:22 AM, Chally wrote:

    The world is too crazy and insecure. Hackers can get very personal information that they need by hacking. Sometimes, they can even find out the password using special hack tools. It's worth mentioning that hack can be very useful in certain condition. A child of my neighborhood behaved erratically some time ago, her parents used Micro keylogger to get her FB password to find that someone was trying to tempting her into taking drugs. That is terrible.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2975106, ~/Articles/ArticleHandler.aspx, 9/2/2015 1:08:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

Today's Market

updated Moments ago Sponsored by:
DOW 16,235.13 176.78 1.10%
S&P 500 1,933.88 20.03 1.05%
NASD 4,688.99 52.88 1.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 12:52 PM
MSFT $42.76 Up +0.94 +2.25%
Microsoft CAPS Rating: ***
X $15.98 Up +0.09 +0.57%
United States Stee… CAPS Rating: ***