In the Agora: Big Blue and the Little Red Book

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January 29, 2005

Big Blue and the Little Red Book

In what Friday's Wall Street Journal deemed "a relatively rare step", the Committee on Foreign Investment in the U.S. (an interagency committee chaired by Treasury Secretary John Snow) will investigate IBM's plans to sell its PC-making division to the Chinese computer manufacturer Lenovo in a deal the Journal said is worth $1.25 billion. In the unlikely event CFIUS recommends it, President Bush has the authority to terminate the deal.

Republican congressman Don Manzullo of Illinois, who filed a request for the CFIUS investigation along with California representative Duncan Hunter and Illinois congressman Henry Hyde (both Republicans), told the Journal he was afraid the Chinese government would use the purchase in an effort to drive U.S. computer makers out of the market. In addition, Manzullo noted IBM's research agreements with the federal government: "Why would the U.S. government be reliant on a Chinese company whose major shareholder is the Chinese government?" Mr. Manzullo asked. "That in itself sends a chill up and down the spines of members of Congress."

The Financial Times, calling the Republican lawmakers the "gang of three," points out that previous Chinese acquisitions of Western technology companies have soured, largely because Western firms are seeking to unload their low-margin businesses on Chinese firms eager to increase their export markets. This is IBM's position, too, because PC manufacturing simply isn't where Big Blue finds its profits any more.

Washington Post offers a synopsis of the story and essentially ends by wondering why the congressmen are urging an investigation of the deal. It could be that they are sincerely concerned about the effects on America's national security, although in that case I think the review will show that selling what is, really, a brand name to a Chinese firm won't materially affect Beijing's military potential.

However, the use of a national security justification where there is probably no national security threat points to one of the flaws in protectionist thinking: That people will always play according to the rules of the game. Instead, well-funded lobbyists and lawyers will always be able to find loopholes, in even the best-crafted piece of legislation, and so carving out exceptions to free trade for national security or any other purpose carries a very real risk that those exceptions will be abused, and the public interest thereby harmed.

There are some technologies we should not export to China. However, ThinkPads are not among those.

Posted by Paul Musgrave at January 29, 2005 09:56 AM

Comments

well-funded lobbyists and lawyers will always be able to find loopholes, in even the best-crafted piece of legislation

Coase theorem at its best.

Posted by: Joshua Claybourn at January 29, 2005 10:31 AM | permalink

I would be concerned about how many government agencies and american businesses use IBM thinkpads and what the consequences would be if there were backdoors placed in them for the Chinese to use

Posted by: Serapheem at January 29, 2005 10:32 AM | permalink

Serapheem,

I don't think that's really a risk. First, I am curious how widespread in government ThinkPads are used; and for that matter, if they are locked in a contract such that they must buy ThinkPads even after IBM sells the name. Second, I would note that such a risk is just as easily possible with every current laptop (is every IBM, Dell, and Compaq/HP employee involved in the manufacture process inherently good and Chinese employee inherently evil such that we would expect it out of one but not the other?).

Third, such a thing isn't easily possible at all. What you're afraid of, I'm assuming, is something that would give the Chinese access to sensitive information without our knowing. The problem is in the trade off: the greater the data mining, the greater the chance someone will notice. The only thing that comes to mind at the optimal trade-off level is a keystroke logger; if enough of the computers are used, it has the potential of transmitting importing enough data to figure out usernames and passwords and that sort of thing.

The risk of getting caught (and any measure will get caught so long as enough computers are out there to really give them anything valuable) is greater than the potential gain, however. The fallout that occurs after someone discovers this malware came pre-installed could have significant proportions.

Posted by: Michael LoPrete at January 29, 2005 11:16 AM | permalink

Where are ThinkPads currently manufactured? I don't know, but I suspect China (correct me if I'm wrong).

If a US-owned company sells PCs that are manufactured in China, or a Chinese-owned company sells PCs that are manufactured in China... Well, really, they're both manufactured in China, and the risk of espionage would be pretty much the same.

Posted by: Mayflower at January 29, 2005 02:32 PM | permalink

Sounds like gates is getting his revenge for the governments anti- trust suit.

Posted by: ed at January 30, 2005 06:45 PM | permalink