Obama retaliation could spur China to call off state visit

Sanctions punishing China for hacking U.S. companies could drive Beijing to cancel President Xi Jinping’s upcoming U.S. visit, according to experts and former administration officials.

The Asian power is increasingly anxious about the potential of economic penalties ahead of what’s seen as an important summit for the future of the U.S.-China relationship.

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“The Chinese right now are getting very concerned, because they understand this will create embarrassing optics around the visit for them,” said Samm Sacks, China analyst at the Eurasia Group, a political risk consulting firm, who has advised government agencies on Chinese tech policy.

While some experts and former White House cybersecurity officials are wary the administration will aggravate Beijing just days before Xi lands in Washington, current officials have privately indicated sanctions may be imminent.

The Obama administration is trying to staunch the rise of China-based cyberattacks pummeling American companies and government agencies. In recent months, the White House has grown more vocal in its public condemnation of Beijing’s cyber espionage, recently calling out China in the White House’s updated National Security Strategy for hacking the U.S. private sector.

Looming penalties are seen as the next step in that progression.

“If they don’t announce the sanctions soon,” Sacks said, “it makes the Obama administration look weak.”

But when those penalties hit is a major question.

Many see little upside to timing the sanctions this close to the meetings. After months of anticipation, such a move would eliminate any chance of a worthwhile dialogue on cybersecurity at the summit and compound the inevitable blowback, policy specialists agreed.

“You’re not going to get any better chance to talk to them than right now,” said Jason Healey, a former director of cyber infrastructure protection at the White House. “If I were Obama, I would want some running room.” 

Healey and others believe the rumors are meant simply as a message to the Chinese delegation as it prepares to make the trip stateside.

“My sense was that the leaks were happening to try and create some kind of pressure on the Chinese as they come into the summit, to get some type of traction with them,” said Chinese cyber policy expert Adam Segal, a senior fellow at the Council on Foreign Relations.

Others have heard the leaks were not intentional and came from hard-liners within the administration who want to press forward with sanctions.

Either way, the U.S. is in a rare position to apply cybersecurity pressure on China. Many believe the White House has less to lose than its counterpart during the upcoming summit.

Within the Obama administration, “There’s a tolerance of having a bad visit,” Sacks said.

Beijing officials are more concerned about the international community’s perception of the meetings, foreign policy experts agreed.

“They want to send the signal about [Xi’s] arrival on the international stage,” Segal explained.

That gives the U.S. fleeting leverage.

Pressure is also mounting on the Obama administration to take a stand against China on hacking following the devastating hacks at the Office of Personnel Management, which exposed over 20 million government workers’ sensitive data.

Beijing is widely believed to to have ordered the digital assault, although the White House has not publicly blamed China.

“We obviously have to show some real strength and resolve,” Senate Homeland Security Committee Chairman Ron JohnsonRon JohnsonGreens launch M ad buy in Wis. Senate race The Trail 2016: Putting the past behind them GOP groups scale back support for Sen. Johnson MORE (R-Wis.) told The Hill. “We're going to have to start laying down the law and come up with some kind of response on that.”

GOP presidential candidates, including front-runner Donald TrumpDonald TrumpTrump: Warren's 'got a fresh mouth' Trump mocks 'Hillary Rotten Clinton' Trump: Clinton knew Wasserman Schultz 'rigged' primary MORE and Wisconsin Gov. Scott Walker, have pressured Obama to take a hard line on China during the summit. Walker even called on Obama to cancel the meetings as punishment for China's recent decision to devalue its currency.

Both the right and left have also bashed the administration for what some say is a feckless approach to cybersecurity.

“They have no policy,” Senate Armed Forces Committee Chairman John McCainJohn McCainSyria activists cheer Kaine pick Clinton brings in the heavy hitters Guess which Cuban-American 2016 candidate best set themselves up for 2020? MORE (R-Ariz) told The Hill. “We need to have a policy as to how to address the issue.”

The White House in April attempted to strengthen its hand with an executive order giving the Treasury Department power to levy sanctions on individuals or entities behind cyberattacks or cyber espionage.

Essentially, the penalties would freeze these targets’ assets in the U.S. financial system and banish them from doing business with American companies.

If the administration does slap Chinese firms these punishments next week, it would be the government’s first time wielding its new tool.

The move would trigger a major backlash from Beijing.

Xi might even refuse to show up to the long-hyped summit, which both sides have been building toward since February.

“I have heard from some sources in China that it’s not out of the question he would not come,” said Bonnie Glaser, a senior adviser for Asia at the Center for Strategic and International Studies.

Sacks estimated there was roughly a 15 percent chance China would squash the summit in retaliation for hacking sanctions.

More likely, several experts said, is that the Chinese delegation finds a way to express disapproval once it arrives in the United States, similar to Xi’s refusal last year to stay at the designated resort during a meeting with Obama in California.

But policy specialists cautioned that unveiling the hacking sanctions in the coming days is both unwise and unlikely. The timing, they say, would be inconsistent with the administration's approach to China so far, and only exacerbate the fallout from the sanctions.

“The Obama administration is trying to walk this line between wielding a more forceful message on cyber while still keeping the larger message that the two sides need to have this candid, constructive relationship,” Segal said.

The U.S. will likely use the summit to delineate the scope of the upcoming sanctions, detail the evidence and rationale behind them and give the Chinese delegation a heads up about when they will hit.

When the Justice Department last year indicted five members of the Chinese military for hacking, China claimed it was blindsided and pulled out of a joint cybersecurity working group with the U.S.

But regardless of timing, the punishments will have ramifications for U.S. businesses. China has been weighing a series of counterterrorism laws and banking technology regulations that the business community and foreign governments have condemned as protectionist. Obama and his cabinet have been lobbying heavily for concessions and delays.

Those negotiations will end immediately once the hacking penalties come down, experts agreed.

“Any type of compromise on those is going to come to a halt,” Sacks said.

It’s a concession the White House has come to terms with, she added.

“National security has been a priority in thinking about this approach, and less the business and economic consequences.”