America isolates Huawei over security risks
President Donald Trump’s latest attack on Huawei did not come as a surprise.
Earlier this month the US banned American companies from using equipment made by firms that pose a risk to national security. Chinese technology giant Huawei wasn’t named. It wasn’t necessary. Everyone got the hint.
At the same time, the US government asked American firms to withhold technology from those companies.
Google pulls Android Support
In the most dramatic move to date, Google said last week it would no longer supply the proprietary parts of its Android mobile operating system to Huawei.
At the same time American chip makers said they have stopped supplying the company. It turns out Huawei has been stockpiling some parts in anticipation of this move.
There has since been a temporary halt on the parts supply ban for existing Huawei products. Parts for new sales, which for a technology company come around fast, are still banned.
Billions at stake
We don’t know how Huawei’s investors reacted to the news, the company is in private ownership.
We do know that if the ban stays it will cost American firms billions of dollars in years to come. It could shut them out of the world’s largest consumer market. That’s been reflected in the share prices of Huawei’s US suppliers.
Trump, and America in general has been ratcheting up the pressure on Huawei for the best part of a year.
Things kicked-off in earnest months ago. Then, American officials warned the world that Chinese spies might use Huawei’s network hardware and phones.
It’s a story Huawei has denied often since spying accusations first emerged in Australia some years ago. Huawei also denies it has links to Chinese military.
Intelligence threat
More recently America threatened to withhold intelligence material for any ally with Huawei hardware on their networks.
It would be easy to dismiss America’s attack on Huawei as mere protectionism. That’s a clear part of what’s going on. Trump has since suggested he could clear up this spat if China cuts a new trade agreement with the US.
There is no evidence Huawei uses its network to spy on behalf of the Chinese government.
There is no smoking gun. Huawei’s accusers have not managed to dredge up any plausible documented evidence.
That speaks volumes.
Where Huawei is a threat
Still, Huawei represents a risk. That’s because Huawei dominates the telecommunications hardware market like no other company.
Telecommunications is essential, critical and strategic. It is a key infrastructure. Without it commerce and finance grind to a halt. So does almost everything else. Telecommunications touches almost every aspect of modern life.
America has suggested that while there’s no evidence of Huawei spying, it could hold countries to ransom.
Should, say, relations with a country deteriorate enough, China’s government might insist Huawei shuts networks. That would be a crippling blow to any economy.
Trade repercussions
It’s possible, but unlikely. The long-term repercussions for Chinese trade would be disastrous. Even threatening this would be fatal. After all who would trade with a partner who behaves like that?
And anyway, a shut-down would escalate matters. It could even tip relations over the brink with some countries. China can be aggressive, but there is no sign it is looking for a war.
There is more pressing long-term economic risk to America and the West. For the first time in living memory a Chinese company holds the key to an important, must have technology.
5G mobile
Huawei leads the way in 5G mobile telecommunications. Its technology is months, if not years, ahead of its rivals. The company has been the driving force behind the move to 5G for the past four or five years. Until the latest US intervention, it looked like Huawei would stay out in front.
A lot of the words and projections for 5G are hype. Yes it means more wireless bandwidth, but it is no more transformational than 4G or 3G.
Even so 5G is set to become a vital component of every country’s critical infrastructure. It’s not only about voice calls or web surfing. The technology is able to control power networks, sewage and logistics.
Huawei dominating this technology puts it in a very powerful position. By extension this could extend to China. The fear is the country could call in its favours from its home grown technology success story.
Technological dominance
We seen this kind of technology-lead dominance before. IBM was, in effect, the entire computing market until the late 1960s. It stayed in control of the sector until the 1980s. After that time Microsoft Windows and Intel processors defined the PC era.
In part these technologies contributed to America’s economic and technological pre-eminence. They helped America assert and project military power on a hitherto unseen scale.
There’s a fear Huawei and China could do the same1. Older readers may remember America had similar fears about Japanese technology. It appeared to pull ahead during the 1980s. The difference there was that Japan was never a military rival.
Huawei already accounts for about a third of all telecommunications network hardware. Until recently it was on a growth trajectory. There is no reason to think that without intervention that proportion could climb to IBM or Microsoft levels of monopoly control.
Yet this frightens strategic thinkers in the US and other western nations.
Part of their concern is they worry about what it might mean for their industries if a Chinese company dominates a strategic market. They know how powerful this can be.
Embargoes
The US has often embargoed key technology product sales to out-of-favour countries. Indeed, an early chapter in the current Huawei spat came when the US accused it of violating Iran trade sanctions.
All this means Huawei doesn’t need to install backdoors in its 5G network hardware to be a threat. Not does it need to push out malicious code during software updates. There is no kill switch, but even if there was, it would be unnecessary.
Huawei prepared for the US action. It stockpiled essential parts. It has its own mobile operating system under development and has worked to decouple its supply chains from the US.
Google that!
It’s hard to see how Huawei can stay competitive in phones without access to new Google software. It needs to offer Google search, Google Maps and other services that are now off limits. Chinese customers might live without them, customers in other markets demand and expect these services.
Huawei may stay competitive in network equipment in markets where it is still welcome. It may need US chips and software. China could, in theory either develop its own or source both elsewhere. That’s assuming the US doesn’t lean hard on other countries.
At this point things can go one of two ways. If it’s about the US putting trade pressure on China, things could blow over, albeit with some damage.
Huawei knock-out?
That’s the optimistic view. A more negative view is that America aimed to knock out China’s most prestigious technology company. It did so either to make a point or to stop Huawei from becoming too powerful.
This can backfire. China is powerful, rich and smart. America may have a more advanced software industry. It’s chip makers may be better, but China could view this as a wake up call to bolster its own industries.
Only a brave person would bet on China not catching up if it puts its shoulder to the wheel. America may have created the monster it had hoped to strangle at birth.
Disclaimer Huawei has flown me overseas three times in the last five years. I aim to take a balanced view of this story, but I’m only human. If you think I’m missing anything importantfeel free to comment.
- This argument forgets the UK government revelation that Huawei’s network software is a shambles. ↩︎