Huawei's Fate Up for Debate in a Possible US-China Trade Deal

Phil Harvey
7/22/2019

Policy experts seem convinced that the US and China will soon reach a trade agreement, but the implications for Huawei's US business are still anyone's guess.

At a recent panel discussion at the Brookings Institution in Washington DC, academics and global affairs analysts weighed in on the role of technology in the US trade war with China -- and the question of how to handle Huawei was key.

The big, overarching problem is that the US doesn't seem to have a consistent strategy for working with China. Tariffs are the US government's most widely used tool to push back on China's emergence now. Senior Fellow Joshua P. Meltzer at the Brookings Institution said that the US has applied tariffs on $250 billion worth of Chinese imports so far.

While that is making it tougher for China to acquire US tech, it's also encouraging China to become more self-reliant and closing off other avenues of investment for US firms. As reported in The New York Times this morning, citing data from Rhodium Group, an economic research firm, Chinese direct investment in the US fell by 88% over just two years -- from $46.5 billion in 2016 to $5.4 billion in 2018.

Meanwhile, China is pouring billions into subsidies and state-owned enterprises (SOEs) as it sets out to be a dominant global player in building 5G networks and several other emerging technology areas. The US is concerned, but a tariff-only strategy isn't going to cut it.

"I don't think our allies have any credibility on China economic issues and I don't think we do either," said Derek Scissors, a resident scholar at the American Enterprise Institute (AEI), at a panel on Thursday at the Brookings Institution. "The treatment of Huawei has been a circus... but we also [haven't been good at] implementing regulations on export controls, which is a behind-the-scenes circus... It's not just Huawei that we're struggling with," he said.

"I think this comes back to the fact that the president doesn't care about technology competition and the rest of the government does," Scissors said.

Indeed, the US stance on Huawei is confusing, to put it mildly.

Huawei is frequently labeled as a threat to national security, though the US government still hasn't produced a smoking gun that links Huawei's telecom gear to spying on behalf of the Chinese government.

The company was targeted, but not named, in President Trump's May 15 executive order, which allowed the Commerce Secretary to ban the import of gear and services from companies that have close ties to foreign governments.

Then, the Commerce Department added Huawei to the "entity list," the group of companies that US companies can't sell to or supply technology to, without a license. That damning move looked to restrict Huawei's supply of US components.

[Side note: In addition to his stance on Huawei, the Commerce Secretary's other noteworthy headline-grabber of late was that he simply can't seem to stay awake while at work.]

In DC and the tech world, it was quickly understood that putting Huawei on the entity list was symbolic. The entity list simply told companies "you have to move your production offshore to sell to Huawei -- that's all the entity list does," Scissors said. "We took an action that does not preclude US firms from doing business with Huawei -- only the location of that business."

That said, the US singled out China's telecom superstar and that did get China's attention, particularly because it followed the US government's moves to enforce sanctions laws, by arresting Huawei's CFO Meng Wanzhou, and the criminal charges related to corporate intellectual property theft and alleged cover-ups that were handed down in January.

When it looked as though the US had a defined stance against Huawei, Trump relegated Huawei from a national security priority to a chess piece in his trade war. Less than a month ago, Trump fielded this question from a reporter: "Did you agree that Huawei can sell to the U.S. or that U.S. companies can sell to Huawei?"

He replied: "U.S. companies can sell their equipment to Huawei. Iím talking about equipment where there is no great national emergency problem with it. But the U.S. companies can sell their equipment. So we have a lot of the great companies in, Silicon Valley and based in different parts of the country, that make extremely complex equipment. We're letting them sell to Huawei."

Within that reply, "Trump effectively gutted the U.S. global campaign to compel other countries to sever ties with the company," wrote Brookings Institution Fellow Ryan Hass, in a post on July 1. "If President Trump sees Huawei as an object of leverage in negotiations, but not a national security threat, it is likely that many other countries similarly will discount the national security risk posed by Huawei."

When it comes to Huawei, Scissors said on Thursday that the US is talking out of "both sides of its mouth, with some justification." According to Scissors, since the US isn't exposed to Huawei telecom gear in a major way, it's easy for it to tell allies that Huawei's a major cybersecurity threat, and then to sell to Huawei or to allow some business to continue to be done by US firms.

"I get the hypocrisy there," he said.

Robert D. Atkinson, founder of the Information Technology and Innovation Foundation (ITIF), said that he sees two different things happening with the import and export issues around Huawei. If we have security worries, we shouldn't import their gear, he said. But the refusal to sell Huawei US goods and services is a trade tactic, not to be conflated with the US security worries.

"We'll get a trade deal if the Chinese want to be reasonable," Atkinson said on Thursday. "I think the Huawei ban put the fear of God in them," he said, referring to Huawei being placed on the entity list.

"The Huawei ban had nothing to do -- nor should it have anything to do -- with security," Atkinson continued. "If we don't like Huawei technology and we think it's [not secure], we solve that problem with an import ban." Atkinson predicted that if China is willing, there would be a trade deal by the end of the year and that deal "would let Huawei off the hook."

Scissors said the prospects for a US-China trade deal are 50-50, and largely depend on what Trump thinks is good for him politically. Per his early remarks, Scissors exclaimed that Trump was interested in a deal, but not technology competition. "If we have a deal, Huawei will absolutely be part of the deal because the President doesn't care. He's the one who has to step forward and say, 'I love this deal.' He's the final decision-maker. He doesn't care about Huawei."

Across town from the think tanks and policy panels -- in fact, quite a bit closer in proximity to the White House -- Huawei's nearly empty DC offices revealed a company in a holding pattern, at least in terms of its US telecoms business.

When it comes to Huawei selling to the US, "the best that's going to happen is that the government's going to talk with us about effective risk mitigation measures -- that is the absolute best," Andy Purdy, Huawei's chief security officer told Light Reading on Friday. Purdy said that a trade deal can make that happen and Huawei's in favor of showing how it can help its US customers. "We believe there are proven risk mitigation mechanisms that can allow us to continue to sell to our customers."

Purdy said a deal, hypothetically, doesn't necessarily have to let Huawei "sell forever" and it doesn't have to include 5G, at first, until the government feels risk mitigation has been accomplished.

When "thinking about our rural customers," Purdy said, "They're not fully built out on 3G and 4G and, in fact, the kinds of capabilities that we could enable -- giving them everything except having the 5G speed -- would include tremendous speed and tremendous reach on multiple devices. And, you know, there could be just a tremendous benefit to rural America."

Related posts:

Phil Harvey, US Bureau Chief, Light Reading

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
More Blogs from The Philter
Ciena's latest acquisition is another piece of a larger back office puzzle for carriers, but the vendor said it's not aiming to become the new OSS stack.
States still have the option of enacting their own net neutrality regulations following today's DC Circuit Court of Appeals ruling upholding the FCC rollback of net neutrality rules.
Ovum Chief Analyst Ed Barton talks to Light Reading's Ray Le Maistre about the services and opportunities 5G unlocks for consumers – and what new capabilities are just around the corner.
The vendor's new XR Optics technology could cut carrier opex and capex in service providers' metro networks. But can the company get everyone else to buy into coherent optical sub-carrier aggregation?
As the editors recap Light Reading's event series on network functions virtualization (NFV) and software-defined networking (SDN), technologies like 5G and edge computing arrive just in time to hurry the industry along its path to more modern networks and add plenty of drama.
Featured Video
Upcoming Live Events
October 22, 2019, Los Angeles, CA
November 5, 2019, London, England
November 7, 2019, London, UK
November 14, 2019, Maritim Hotel, Berlin
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events