“Huawei” — The name at the center of the trade war between the United States and China, and the foremost player in the battle over 5G. Recently becoming the second-largest seller of mobile phones behind Samsung, beating Apple for the first time in 2018, the Chinese telecommunications company has grown in popularity not just in traditionally Chinese-allied nations but also in Europe, where many of the United States’ allies reside. It already is built into much of Europe’s 4G infrastructure, and while much of the discourse around 5G has surrounded the United States and China, Europe is primed to become the central battleground.
The United States vs. China
In 2019, citing Huawei actions that “are contrary to U.S. national security or foreign policy interests,” the United States placed Huawei on its “entity list.” Companies on this list are banned from buying components and services from US-based companies, and as such this list is sometimes referred to as the “death penalty,” as being on it makes it very difficult for companies to expand and survive. In particular, it is likely that the United States hoped this action would slow Huawei’s growth. Since Huawei phones have become extremely popular in Europe, by withholding access to Google’s software, the United States may hope to make Huawei phones less attractive to Western consumers that expect to be able to use Android on their phones.
The Chinese have also been striking back. China recently announced that all state offices should be off foreign hardware and software in three years. While Beijing’s plan reflects its broader goal of decoupling China from American technology and services, the timing of the announcement means it could also function as a response to the United States’ rejection of Chinese technology.
While the plan faces challenges in China, as the Chinese must now manufacture replacements for Intel chips and Windows OS, the implications for the United States are unpleasant as well. As Dr. Scott Moore, the China Program Director at the University of Pennsylvania, discussed in an interview with the HPR, the Chinese government market is a “drop in the bucket” for a major player like Microsoft. However, he explained that more concerning for U.S companies will be the Chinese private sector. The government ban will likely cause “a huge swath of certainly state-owned enterprises but probably a lot of private sector businesses in China as well to follow the lead” of the capital. Moore explained, “that’s typically how the Chinese system works: you get a lot of response to perceived policy signals from the center.” Thus, the reaction of the private sector would likely have a much larger impact on U.S. companies. It is also possible that as Chinese economic power grows, other countries may follow this lead.
Some countries have already responded to the signals coming out of Washington, D.C. and Beijing. Many south Asian nations have decided to accept Huawei into their infrastructure while Japan, New Zealand, and Australia have followed in the United States’ footsteps. Canada, too, has maintained its closely allied status with the United States by detaining Meng WanZhou, CFO of Huawei.
Europe Caught in the Middle
European nations have been especially concerned by the struggle over Huawei, caught between their historical commitments to the former and their budding economic relationship with the latter.
As the United States heightens its efforts in convincing its allies to reject Huawei, the company has been making plays of its own for European favor. It already has over half of its more than 65 5G contracts in Europe. In an interview with the HPR, Philippe Le Corre, an affiliate with the Project on Europe and the Transatlantic Relationship at the Harvard Kennedy School, remarked “that if you fly into Europe, in airports around Europe you will see billboards, you’ll see ads [for Huawei].” Consequently, Europeans have “the impression that [Huawei has] invested a lot in the consumer market and also in the enterprise market.”
Huawei may even want Europe to believe that it is an “insider.” Its top official in Europe has gone so far to claim that “it is Huawei, not America, that shares European principles” and that “Europe’s values of openness, innovation and the rule of law have led to it being a powerhouse in mobile communications — and Huawei shares these values.” However, Le Corre believes that these claims are inaccurate. He noted that compared to western multinational companies, it has very little transparency, and that “it is a very Chinese company, anyone who has been to their headquarters can see that.” Furthermore, “their views of corporate social responsibility are certainly not what you would hear in the West.” For example, he pointed out that Huawei views providing telecommunications equipment and smartphones to Africans as corporate social responsibility, although in reality doing so mostly serves to expand their own business.
Certainly, the response in Europe has been mixed. Countries such as Germany and the United Kingdom have expressed concerns about China’s National Intelligence Law, which obliges individuals and corporations to cooperate with Chinese intelligence. There are concerns that under this law, China could force Huawei to give the Chinese government intelligence data about its users. France and Germany have considered restricting the Chinese company’s role in their respective infrastructures as well.
Yet, despite security concerns, it is often difficult for these countries to turn away from Huawei’s 5G contracts. President Trump recently sent a delegation of senior U.S. officials to dissuade the United Kingdom from using Huawei in their 5G networks. While it is understood that there are potential security threats, in spite of the United States’ protestations, U.K. intelligence has expressed confidence in being able to mitigate the security risks that Huawei technology might impose. Furthermore, since the United Kingdom also faces Brexit, its economic ties to China are crucial for the nation’s economic future.
In an interview with the HPR, Dr. Paul Bracken, a professor of management and political science at Yale, conveyed the idea that as trade negotiations shift away from the being governed by the World Trade Organization and toward being country-to-country direct negotiations, there will likely be many economic trades made between European nations and China in the telecommunications market. In particular, he sees the strategy of China in Europe as trying to “divide the countries in the European Union to prevent them from behaving in a united way in alliance with the United States.” He added that the United States has taken this strategy in business before to prevent the creation of a pan-European national champion out of Airbus – a competitor of the United States’ Boeing. This strategy, now being used by the Chinese, is particularly obvious in Germany, as Bracken explained that the Chinese can say to the Germans “if I give you access to the car market in China to continue selling German cars, you will give me access to the telecommunications market.”
In addition to the loss of Chinese investment and trade, the risk that rejecting Huawei could decrease innovation and set the continent behind seems to weigh heavily on European policymakers. 5G has the potential to lead to instantaneous communication for self-driving cars and extremely fast download speeds, among other innovations. For a country to delay embracing 5G could translate to delayed innovation relative to other nations. In an interview with the HPR, Peter Harrell, an adjunct senior fellow at the Center for a New American Security and a former deputy assistant secretary in the State Department’s Bureau of Economic and Business Affairs, stated that European countries are likely to have different considerations than the United States as they may fear missing out on innovation should they hold back from adopting 5G as soon as possible. He noted that “there is a sense in Europe that because Europe was much slower than the United States in rolling out 3G and 4G technology, that … was actually very harmful economically for Europe.” In particular, “it gave American tech firms a leg up in building technology that used 3G and 4G such as Uber, which really could not have worked without that bandwidth.” Harrell noted that this concern is greatly underappreciated in Washington.
Another attractive property of Huawei’s networking equipment is that it can be up to 30 percent cheaper than its rivals and is more economical to run. Huawei equipment has been used in 4G infrastructure across the globe and has a further economic advantage in Europe where it would be far cheaper to build Huawei’s 5G infrastructure on top of existing Huawei 4G infrastructure than to rip out the Huawei elements and replace them with another provider’s. As Moore noted, there truly is nothing comparable in the West to Huawei in terms of a company being able to provide “the whole ecosystem of [5G] services.”
Hence, many European countries are willing to put some more work into security in order to use this product if it reduces the costliness of implementing 5G. Furthermore, while any compromising on national security interests may seem unfathomable from a U.S. perspective, Harrell commented that perhaps there should be some sympathy for the Europeans “as the Europeans will point out to you that the U.S. pervasively spies in Europe.” Hence, “there is a sense in Europe that this is not a choice between not being spied on and being spied on; it’s a choice of the Americans spying on you or the Chinese spying on you.”
Looking Ahead
The battle over Huawei and 5G is ultimately a battle to control the entire internet of the future and all of the innovation that comes with it.
The United States appears to be fighting a losing battle over the use of 5G around the world. While the U.S. sanctions on Huawei have slowed operations somewhat, it is nowhere close to what was expected. Huawei remains the world leader in telecommunications and is still growing at nearly 30 percent in the smartphone market. In fact, during his trip to China, Moore found that the company itself views the trade war not an obstacle, but “as their greatest hour, that if they make it through this period … this will truly prove Huawei’s greatness.” If U.S. policy was intended to dissuade Huawei’s aggressive campaign to expand in new markets, clearly the opposite has happened.
For Europeans, however, there is an opportunity here. Le Corre believes that, ultimately, Europe should reach a consensus “on what space should be given to Huawei and possibly, ZTE [another Chinese state-owned telecommunications corporation] in Europe” and that there should be a clear contract “on job creation, and how much they would help the local economies.” With China and the United States both intent on gaining Europe’s favor, European countries have an upper hand in negotiating such contractual terms as well as for access to markets or other political plays.
Ultimately, though, the issue of 5G is extremely complex. Should Europe embrace Huawei 5G, it could have serious consequences for the future of the transatlantic relationship. As Bracken pointed out, there are salient national security threats. China’s intelligence-sharing with Russia could be damaging to numerous American allies in Europe and the NATO alliance.
Yet, pushing its allies to reject Huawei 5G is unlikely to work for the United States. Harrell comments that in being so fearful of intellectual property theft and being so concerned with stopping Huawei from innovating, the United States has moved away from its own innovation. Bracken, too, believes that the United States should reduce its animosity towards Huawei 5G and instead enlist its universities and think tanks in order to better understand 5G and its potential impact. Moore also believes that this is a time where the United States should take advantage of its own innovative talent and work with its allies to innovate to create a sort of “free world 5G.”
Either way, the United States and China have reached a new point in their battle for control, and now Europe must play the role of arbiter in this economic conflict. The world is at a crossroads and the decisions that these economic actors make will have long-lasting consequences on the future of global trade, politics, and history.
Update 3/6/20: An earlier version of this article misidentified Huawei as a state-owned company. Huawei is technically owned by Huawei Investment & Holding. Approximately 1% of this holding company is owned by Ren Zhengfei, Huawei’s chief executive, while the remaining 99% is owned by a labor union called the Union of Huawei Investment & Holding. Thus, Huawei claims to be owned by its employees and there is little consensus about any state ownership of Huawei.