The US government has been steadily ramping up its campaign against Chinese tech giant Huawei in the past few years – and its latest move is already beginning to have serious global consequences.
In May the US Commerce Department placed Huawei on an “entity list” of organisations essentially banned from doing business in the US or with US companies. The effects rippled out far and fast: Within days, Google halted sales of its Android mobile operating system to Huawei, meaning that one of the world’s most popular handset manufacturers can no longer ship phones using the world’s most popular operating system. Huawei will either have to “fork” Android, continuing to develop its open-source core along a divergent new path, or develop its own operating system. Either choice will have significant consequences for billions of ordinary cellphone users around the world.
It’s not only US firms who are affected, either. British microchip designer ARM has told its staff to suspend all dealings with the Chinese firm because its designs contain technology developed in the US, and Japan’s Panasonic likewise stopped shipping some components. This is only the start. Technology companies around the world are deeply interconnected: research is conducted and standards are developed by global teams, designs developed in one country are manufactured in another using components sourced from yet others; and those components themselves have components which were produced in global collaborations. The connections go all the way down.
One of the more easily foreseen consequences of interfering so bluntly in this set of global networks is that Huawei and other Chinese companies, with the backing of the Chinese government, will speed up their already significant efforts to develop their own technologies to replace everything from chipsets to software. Most analysts suggest this will be difficult and take time – but it will happen.
The US, in other words, is incentivising China to become a lot less dependent on the US (and in the process perhaps making many other nations think twice as well). This is not great news for American tech companies, for whom China is a major export market; many will suffer in the short term, and in the long term they face the risk of being cut off from the world’s largest market.
In at least one area, China and Huawei are already far out in front. Huawei is the world’s largest manufacturer of network equipment. It also holds critical patents over the fifth-generation (5G) mobile technology which is beginning to be implemented around the world, and is expected to start seeing mass adoption by 2025. 5G, which promises mobile connectivity as fast and reliable as the fastest current wired connections, is a potential game changer, enabling everything from autonomous vehicles to remote surgery.
It’s Huawei’s dominance of network equipment, of course, that is behind the US ban in the first place. The ostensible reason is that Huawei’s ties with the Chinese government are too close and that allowing its equipment into critical network infrastructure is a national security risk. Those of us outside the US are perhaps justified in viewing this with some scepticism. The US government, defence establishment and the tech industry have deep links going back many decades; indeed, the Internet itself has its roots in DARPAnet, a project of the Defence Advanced Research Projects Agency. If Huawei is a threat because of government links, should we not be asking equally difficult questions about Cisco, or other US-based firms whose equipment is embedded in US and other global telecommunications networks?
The US already arrogates to itself significant powers to monitor global network traffic and seize private data around the world. The Clarifying Lawful Overseas Use of Data (CLOUD) Act, passed hastily by Congress in March 2018 without any committee review or hearing, compels US companies –like Google, Amazon, Microsoft, Apple, Dropbox, and many others — to release data they hold to US authorities, even when this data originates and is stored overseas. This will require a lawful warrant, of course – but the warrant will be classified. And with the US having a notably elastic idea of what constitutes a threat to national security, it’s easy to imagine that most warrant requests will be granted with little scrutiny – especially if they don’t affect US citizens.
Whether the US battle against Huawei is a matter of national security, anticompetitive meddling to protect its own economic interests or a bit of both, the implications reach far beyond America and China. When elephants fight, goes an old African saying, it’s the grass that is damaged; and in this fight, it’s the rest of us who are grass.
As published on AccountingWeb – 1 July 2019