The United States is becoming an increasingly hostile place for international electronics companies like Huawei, thanks to trade tariffs imposed on Chinese products. The U.S. Government also placed companies like Huawei on a blacklist, keeping it from accessing things like Google’s Android operating system for its phones.
In response to this, the company has announced a new plan — a plan to develop a 5G mobile network for Russia. Why is this new plan so risky, and is the U.S. doing anything to stop this plan?
A U.S. Blacklist
Early in 2019, the U.S. Department of Commerce added Huawei and a number of other international companies to it’s “Entity List” — essentially a blacklist preventing these companies from buying anything made in the United States without a license. For companies like Huawei which makes cell phones, being added to the Entity List is a catastrophic blow. Almost all of Huawei’s smartphones run on Google’s Android operating system. Without access to that OS, this blacklist could spell the end of Huawei as a company.
This ban isn’t just affecting Huawei, which is based in China. It’s impacting other businesses that work with the phone company. Skyworks, for example, earned 12% of its revenue from transactions with Huawei. Neophotonics, a company that enables quick network data transfers, makes 46% of its annual revenue from Huawei.
Instead of taking the lumps and folding, Huawei has struck a deal with Russia to try and keep their company afloat.
5G for Russia
Chinese President Xi Jinping and Russian president Vladimir Putin signed an agreement to allow Huawei to build a 5G network for Russia. Even before the Entities List, experts in Washington were urging communications companies to avoid or even ban the use of Huawei 5G network equipment, at the risk that individuals in Beijing could use the network for espionage, creating a national security risk.
There is also a growing concern about the theft of intellectual property, which is part of what triggered the trade war in the first place. Companies have repeatedly reported that China forces them to transfer their intellectual property to Chinese partners in return for being able to operate within the country.
It’s estimated that these thefts cost companies between $225 billion and $600 billion a year. This sort of technology transfer is not technically allowed by the World Trade Organization, but with so many negotiations taking place in secret, it’s hard for the organization to oversee all of them.
China’s response to these allegations is to deny that they’re requiring companies to turn over their IP, even endorsing a foreign investment bill that is supposed to take effect in 2020 that expressly forbids the forced transfer of intellectual property — even though it’s supposedly not happening.
In response, China has also placed tariffs on goods being exported to the United States, though as of June 27th, 2019, the countries have reached a tentative truce ahead of the G20 summit. New tariffs are expected from both sides during the summit though, so there is no end in sight for the US-China trade war.
Russia, it seems, has no such qualms about partnering with Huawei. The company is partnering with Russian phone giant MTS to create the country’s first 5G network. The goal of this partnership isn’t just to provide Russian consumers with better mobile internet — it’s to foster a stronger economic relationship between China and Russia. Theoretically, Huawei could have a 5G network up and running in Russia as early as 2020.
Verizon started offering 5G speed to some of its customers in 2018, but it was only to a select few clients and it hit a lot of snags that proved that the U.S. networks aren’t ready for 5G speeds quite yet. This partnership between China and Russia could mean that Russia will become the first country in the world with a comprehensive 5G network for its users.
A Risky Game
Banning Huawei from purchasing the U.S. made goods and services might have seemed like a good idea when President Trump signed the executive order that added the company and so many others to the Entity’s List, but it may be the pebble that starts the avalanche.
This one act and the subsequent ripples that followed it have set up Russia and China to become a technological super-power in their own right which could potentially break the United State’s dominance of the tech market.
This could also be a sign that the internet, once the world wide web, is beginning to fracture. While adding Huawei to the Entity List may help protect United States security, it pushes countries like China and Russia closer to creating their own communications infrastructure that will keep them separate from the rest of the world.
Russia has already been toying with its own custom internet service, which would disconnect the country from the rest of the world wide web. This could, in time, destroy the positive impact that the internet has had throughout the world, stunting global commerce and, quite literally, turning back the clock on the global economy.
Banning Chinese companies from accessing things made in the United States is the spark that might ignite a full-blown trade war between China and the United States — but instead of fighting, China is seeking out other allies. This is a risky game that President Trump is playing, and only time will tell the impact that it might have.