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(CNN) —  

China and the US are set to take action against each other as tensions escalate over trade, cyber hacking and espionage as US senior law enforcement officials identified Beijing as the most serious threat to US national security on Wednesday.

China’s methods of non-traditional espionage – including their use of ordinary Chinese expatriates instead of spies at universities and businesses, and intellectual property theft – were explained by officials from the FBI and departments of Justice and Homeland Security who briefed US lawmakers.

“As the United States proceeds a whole of society response to this threat, we must address the vulnerabilities within our system while preserving our values and the open, free and fair principles that have made us thrive,” E.W. Priestap, the FBI’s assistant director of counterintelligence told the Senate Judiciary Committee. “What hangs in the balance is not just the future of the United States, but the future of the world.”

A bargaining chip

Priestap and his colleagues testified hours after Secretary of State Mike Pompeo confirmed in an interview with Fox News that the US believes Beijing was behind the massive cyberattack on the Marriott hotel chain. The New York Times reported the assault was part of a broader Chinese operation that also targeted health insurers and the security clearance files of millions of Americans.

Those disclosures come a day after President Donald Trump told Reuters he would be willing to use a Chinese tech executive arrested for violating US sanctions on Iran as a bargaining chip in his trade war with Beijing, which for now is in a 90-day pause.

“If I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” Trump said in the interview.

US business executives have been bracing for further retaliation from China, which has called for the release of Meng Wanzhou, chief financial officer of Huawei and the daughter of the communications giant’s founder, following the detainment of a former Canadian diplomat on Tuesday. A Canadian judge granted Meng a $7.5 million bail, while she awaits extradition to the United States.

Retaliation planned

“The Huawei arrest was enormously unpopular in China and there is some retaliation planned for by security services. You’re likely to see more things like that in the next bit,” said a source familiar with ongoing trade negotiations, referring to the diplomat’s detainment.

The Trump administration has insisted that trade talks are on a separate track from renewed strikes against China to halt cyber espionage practices and intellectual property theft.

On Tuesday, Trump said the United States and China were having “very productive conversations” shortly after Treasury Secretary Steven Mnuchin, Robert Lighthizer, the country’s top trade negotiator and Chinese Vice Premier Liu He spoke by phone for the first time following a presidential dinner on Dec. 1.

But US-Sino experts argue inevitable intrusion of national security concerns will only further complicate fragile trade talks between the two major superpowers.

“This is going to make the negotiations more complicated,” said Craig Allen, president of the US-China Business Council. “If this were only economic negotiations, it would be relatively easy to reach an agreement. But inevitably, it’s going to spill over into other areas, and I think the more national security is tied up in this, the more difficult it will be to reach an agreement.”

The Justice Department’s top national security official told lawmakers on Wednesday the administration is reacting to China’s “steadily increasing” economic espionage activity, which costs the US an estimated $225 billion a year.

From 2011 to 2018, more than 90% of the DOJ’s cases alleging economic espionage by a state have involved China, and more than two-thirds of trade secret thefts have a nexus to China, Assistant Attorney General John Demers said.

“From underwater drones and autonomous vehicles to critical chemical compounds and inbred corn seeds, China has targeted advanced technology across sectors that align with China’s publicly announced strategic goals,” Demers said. “The play book is simple: rob, replicate and replace.”

’Rob, replicate and replace’

“Rob American companies of information technology, replicate and replace that American company in the Chinese market and then the global market,” Demers outlined.

US prosecutions of the cases began in 2014 as the department prioritized the crimes.

“We’ve been able to bring a number of cases because the activity is tremendous and the grounds for those cases is very fertile,” Demers said.

Beijing’s espionage focus is clear, Demers said, pointing to a 10-year strategic plan China published in 2015 that outlined 10 advanced technology industries for development.

“What they’re telling us overtly is where they want to lead the world” in areas they believe will be the future of technology, Demers said. “What they deny ritually, openly, is that they’re also using illegal means to advance their development goals.”

“No one begrudges a nation that develops the most innovative ideas …” Demers said, “but we cannot tolerate a nation that steals the fruits of our brainpower.”

Priestap said that location is no protection against the reach of China’s efforts to steal information. “A lack of participation in the Chinese market will not spare a company from the risks the Chinese government and its companies pose,” the FBI official said. “While the risks may be more acute for companies with business in China, all companies, even those solely operating in the United States, are at risk.”

One way China has shifted its approach, Priestap said, is to move away from “spy vs. spy” operations. Instead, it is now “relying today on people from all walks of life to carry out their aims,” Priestap said.

“They have a great ability to lean on people – some who are witting, some who are not witting – in their society to carry out their aims. Whether they be researchers, scientists, students, businessmen, otherwise tourists, the Chinese intelligence services don’t hesitate to ask those people to carry out their aims,” Priestap said.

No demonizing

The FBI official said, “I’m not trying to demonize any people,” but emphasized the reach of the Communist Party and its control of all aspects of Chinese life. Businesses that refuse to meet a party request that might contravene US laws “risk being shut down,” Priestap said.

China views members of its diaspora in the US including students and technology company executives as “being beholden to them,” Priestap said. They will “utilize, lean on those students, say if you want your tuition paid … then you better not come home empty-handed,” he added.

“They think of them as just simply an extension of their power of their nation,” Priestap said. The awareness level of knowledge Chinese nationals in the US have about the way they’re being used by their government varies, he said.

“Based on FBI interaction with some of those individuals, it really is a case-by-case basis,” he said. “Some are not knowledgeable in the least and are completely unwitting of doing anything in furtherance of their government’s aims and others … understand they have obligations to meet.”

Demers said the US is considering new steps for dealing with non-traditional espionage, both in and outside the US. One possibility, he said, is the creation of a body akin to the Committee on Foreign Investment in the United States, known as CFIUS. The interagency committee reviews transactions involving foreign investment in the US that involve sensitive technology and can veto sales.

“We also need to be looking at activity that’s perfectly legal, but may pose a national security threat,” Demers told the committee, saying it may require legislation and should include measures to counter theft of US intellectual property outside the US by non-Americans. That kind of activity is currently outside the scope of current US law, he said.