The semiconductor manufacturer Nvidia, which had until recently been the most valuable company in the world, was thrown into turmoil this past week. Company founder and CEO Jensen Huang resigned upon allegations that he had an affair with a suspected Chinese spy and subsequently intervened to sell Nvidia chips to her China-tied company, despite U.S. regulations in place to prevent China’s access to the technology. The scandal has put a spotlight on the widespread international practice of economic espionage—and also on the Trump administration’s susceptibility to corruption.

What is the difference between industrial espionage and economic espionage? Is the tech elite particularly vulnerable to this type of spying? And will China be successful at incorporating any AI technologies that it managed to steal?

Those are just a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity. For the full conversation, look for Ones and Tooze wherever you get your podcasts. And check out Adam’s Substack newsletter.

Cameron Abadi: What are the differences exactly between industrial espionage, economic intelligence, and economic espionage?

Adam Tooze: In general understanding, industrial espionage is above all targeted at particular businesses by, more often than not, other businesses but sometimes by governments. And it’s about accessing commercial secrets, business secrets, business strategies, business technologies. And it involves various types of subterfuge or illegal action.

Economic espionage is sort of blurred into that zone, because it also involves various types of subterfuge. But when we say economic espionage, one immediately thinks of governments. Why is that? I think because when we think of businesses, we think of private economic activity and profit. But when we use the word “economy,” we immediately start thinking about GDP and national interest. And so, the sorts of information that are being targeted there might be more to do with technologies of general strategic interest. So that will be different from industrial espionage or purely commercial espionage.

And then an example of economic intelligence would be, say, wartime efforts on the part of the British who are aiming a strategic bombing program against Germany and therefore need to understand how the German economy functions and built an economics intelligence wing of the British military war effort so as to organize that. And that ranged from people who were architectural historians who knew which cities would be inflammable if you dropped incendiary bombs on them all the way through to an understanding of the input-output diagram, the supply chains.

And it involves, more often than not, open-source information. It doesn’t involve any subterfuge at all. And so economic intelligence kind of blurs into the world that we’re in, of economic reporting, of newsletters, of regular updates. The Economist magazine has what it used to call the Economist Intelligence Unit, which was presumably very well-connected journalists doing studies.

And I think the allegation in the Nvidia case sits most squarely in the domain of economic espionage. Yes, it targets a particular business and the top man in that particular business, the charismatic figurehead, indeed, of the entire hardware side of AI. So it would seem that it sits somewhere on that boundary.

I don’t think the allegation, however, is that Jensen Huang’s lover was doing this with a view to commercially profiting herself. I think the suggestion is that it’s MSS, the Ministry of State Security, which is doing this on behalf of the Chinese state.

CA: Jensen Huang is said to have fallen prey to a honey-trap method of espionage, in which a spy creates a sexual relationship to later exploit it. Is our current economic elite in tech companies particularly susceptible to this form of espionage?

AT: It’s impossible not to speculate about the ego makeup of Silicon Valley engineers. It wouldn’t, after all, be surprising if there was a desire for compensation for a whole variety of inhibitions, which no doubt are introduced at various stages in many people’s careers during their extraordinary efforts in very recondite zones of technical expertise. So, the nerd gone wild at the head of a company, the loneliness of people in that kind of position, all of this, I think, no doubt plays a role.

But then I was thinking, actually sociologically, and I came to this strange realization, because I spend quite a lot of time in hotels because of this weird existence that I have. And I was thinking to myself, if a senior soldier goes to a hotel, on the face of it, you’re kind of wondering what the senior soldier is doing in a hotel, right? If a senior civil servant, pretty much whichever government they work for, goes to a really glamorous hotel, again, you’d be asking yourself, how can they afford that? That’s not really where they belong, right?

So suddenly, you realize that the whole zone of high-end, expensive, relatively exclusive hospitality that presumably provides the most attractive zone for this kind of entrapment, the actors for whom it arouses zero legitimacy issues, zero need for explanation at all, in fact it’s completely normal and taken for granted, are high-level business figures.

In fact, the entire conference circuit, where people stay, the blending in those spaces of leisure and business activity, including pools and gyms and eating and drinking as a matter of course, in fact, isa kind of mandate for many businesses. I’ve gone to a lot of these investor conferences, and it’s quite clear that networking is an absolutely required option, right? There’s no excuse for just withdrawing to your room and getting on with your life, which I’d want to do most of the time.

And so presumably, this is precisely the world in which this works. I mean, business people systematically expect to be wined and dined. They expect to be courted. They constantly struggle to draw the line between reasonable inducements and bribery. That is an essential part of their business. And many of them, of course, have very strict codes of ethics. But it’s a matter of record that those shift all the time.

And they’re much more like, in that sense, the Chinese Communist Party than they are like, you know, conventional civil service jobs in the West, where it’s just quite clear that accepting any kind of gift in any form is just off-limits. No one in the civil service is regularly invited to glamorous parties where there’s a mixture of more or less formally clad, in some cases scantily clad, different types of interaction. And so it’s a kind of recipe for stress on this fault line, I would have thought. And it’s purely sociological, it’s not a matter of psychology at all.

CA: There’s clearly a distinction between pursuing the acquisition of technologies through espionage of this kind versus productively absorbing that technology upon having acquired it. How does that distinction apply right now to China?

AT: I think this is the whole game, actually. The real reason to be worried is that China has a demonstrated and extraordinary capacity to incorporate. In other words, it’s a near-peer. And that’s precisely what makes it so alarming to Western security officials, is that there’s absolutely every reason to think they can, yeah. And furthermore, leapfrog, even. Give them half a chance and there’s every single reason to think that they can generalize it, make it cheaper, speed it up.

There are differences, obviously, because what Nvidia does or what Taiwan Semiconductor Manufacturing Company does or what the lithograph makers do is literally special source. Like, no one has ever done that anywhere, ever, in the entire world in the history of humanity. So whether you can replicate that is an open question. But that’s presumably what the Chinese aren’t going to do anyway. They’re going to make their own version that’s more suitable to their circumstances.

And it’s critical to know—and we don’t know what’s actually happened in this case—but there are certain critical problems that it’s interesting to know how other people solve them, because it helps you to think about how you should solve them in your own terms. And that is why I think the Chinese case is so significant, because they have a demonstrated capacity to do that. And it really varies—in regard to transport engineering, cars, railways, solar, batteries, there has already been hugely successful leapfrogging; the game is over. With regard to chips, it’s a slightly different story, and I think that speaks to the fact that the technological demands are just so mind-blowingly high.

But that does contrast very significantly with the Soviet Union, which at different periods in its history demonstrated greater- and lesser-degree capacity to incorporate technologies that it acquired through espionage. So around the atomic bomb program, there was a quite a high capacity to incorporate. Then of course in rocketry, they become world-leading. And they do that like the Americans by capturing German rocket scientists and then incorporating their knowledge into what was already a high-functioning military industrial system in the Soviet Union that was wasteful of people’s lives but was generative of a whole series of incredibly innovative, very, very powerful and effective weapons.

But more generally, it’s a remarkable instance of just how little can get transferred, because after all, the Soviet Union was the beneficiary, after ‘45, of a huge wave—this is the untold story of German reparations after World War II, absolutely gigantic, and they take the form principally of dismantling. So vast amounts of German equipment are shipped to the Soviet Union where, I don’t think it’s merely apocryphal to say, an awful lot of it just rusted and was not fully incorporated into the Soviet system.

Now, in earlier stages, they had done much better. So in the ‘30s, the Stalinist industrialization program is heavily dependent on American expertise and on German expertise funded in part by export guarantees from the Weimar Republic that helped to fund this flow.

So it wasn’t consistently rubbish at incorporating, but it certainly wasn’t the powerhouse of creative imitation, adaptation, modification, and improvement that China is, to an extent that nowhere else in the world can match, right?

That’s the extraordinary thing. They can iterate, they can modify, they could incorporate at a pace that no one else in the world—in almost all areas of production—no one else can match. And so, then if you feed that with privileged insider information, then you’d expect really large-scale effects.