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Chinese hardware hacking may result in higher electronics prices

On October 4 2018, Bloomberg Businessweek published an article alleging that Chinese hackers had compromised hardware that was being used in many large US companies.

The article used something like 17 different unnamed sources, and resulted in a major sell-off of the main affected company’s stock. After its publication, there was a separate disclosure with an IT professional stated that he had recently been working with a major US telecommunications company and found similar compromised hardware.

So far, all named companies have denied everything - this could cause major financial shocks to companies including Apple and Amazon.

This report is similar to some of the information released by Edward Snowden, that implicated US security agencies in hacking devices that were being sent to particular overseas entities.

The issue: at the moment, companies are seeking the cheapest place to make their stuff. This means China is involved in a lot of IT manufacture. China and the US are currently frenemies - they need one another, but China is allegedly stealing US secrets and presumably the US is doing the same.

If China is hacking IT hardware that is being made/assembled there - and according to Bloomberg’s article and the later story about telecoms hardware this is incredibly difficult to detect - then at some point companies are going to need to move their facilities elsewhere to serve the US and other markets. Problem? The reason the companies are manufacturing in China is because labour is cheap and well educated. The supply chain has shifted from country to country seeking lower prices, and there is no obvious successor to China - especially if you are worried about security.

So I predict that many IT companies will start repatriating their manufacturing facilities (whether in-sourced or outsourced) to the US and other friendly countries, and will have to pay more to their employees/contractors.

On the bright side, Australia could gain jobs from this - with the right governmental push-along.

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I worked with (not for) a company that assured US exports were suitably ‘inspected and adjusted’ as necessary (COCOM days). The company was uniquely qualified without peer in its time.

Regardless the mantra from the US is the US doesn’t hack (but it is good), but the Russian and Chinese hacking that was behind the hacking technology curve has been bad. While their efforts were behind the curve the US did a wink and a nod because they could be monitored, but not so easily any more; the problem causing the hissy fits is that Russian and Chinese hacking has gotten to the top of the game and the US is not alone.

Put it into a future tense and you will have to pick who you want to trust, not who you can or should trust, to be your frenemy.

My cynical side says that more likely government would, as it so often does, be putting US national interests above our own and thus taking sides that could be contrary to long term interests in the execution of that ‘push-along’.

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Yes, the US was doing hardware hacking in a similar vein years ago - per Snowden documents. Worse, the US deliberately undermined security standards and then paid a security software company to use its weakened encryption by default.

The question for Australia is whether we should ‘trust’ the US, or China, or indeed any other hardware manufacturing/producing/selling country with our biggest secrets. We cannot manufacture our own hardware, and I doubt that government agencies have the capacity to check everything they use - if they even have the skill-set.

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