Europe has always been the primary battleground in the conflict between Huawei and Washington, and over the weekend a cellular industry group put the 5G cost for the EU of excluding equipment from Huawei and Chinese stablemate ZTE at more than $60 billion, and a delay of up to 18 months.
The GSMA report noted that with Huawei and ZTE accounting for around 40% of EU cellular equipment, non-Chinese alteratives including Ericsson, Nokia and Samsung could not pick up the slack with their existing commitments in the U.S. and Asia. As a result, “a ban on Chinese vendors would severely lessen competition in the mobile equipment market, increasing prices and driving additional 5G rollout costs.”
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U.S. networks are largely Huawei-free, and so the industry report also concluded that a prohibition on Chinese network kit would disadvantage Europe: “The need to replace network equipment and the capacity constraints on the remaining mobile equipment vendors would disrupt current rollout plans. Such a delay would widen the gap in 5G penetration between the EU and the U.S. by more than 15 percentage points by 2025.”
Ironically, on June 4 the White House’s acting budget chief Russell Vought reportedly wrote to U.S. Vice President Mike Pence asking for a delay in elements of the 2019 National Defense Authorization Act that ban Huawei’s use across the federal government. The issue reportedly being that the number of companies able to supply the U.S. government would reduce as supply chains are stripped down and reassembled.
The letter said that “while the Administration recognizes the importance of these prohibitions to national security, a number of agencies have heard significant concerns from a wide range of potentially impacted stakeholders who would be affected.” Given Huawei equipment is deployed in rural areas rather than with major carriers, the letter also pointed out that “rural Federal grants recipients may be disproportionately impacted by the prohibition.”
With that and the news on June 9 that U.S. Treasury Secretary Steven Mnuchin might have told fellow G20 finance ministers in Japan that Huawei could see an easing of sanctions if U.S. trade talks with China go well, one can imagine how European governments are feeling about the whole Huawei mess this week. According to Reuters, Mnuchin said “I think what the president is saying is—if we move forward on trade—that perhaps he’ll be willing to do certain things on Huawei if he gets comfort from China on that and certain guarantees,” albeit adding that “these are national security issues.”
Mnuchin did seemingly backtrack later, telling CNBC that “as we’ve said all along, the Huawei discussions are really national security discussions, they’re separate from trade,” but the damage was seemingly done. “Is it considered fair these days to use a single company as a pawn in political negotiations?” Huawei asked in response to the news on Twitter.
The practicalities of the sanctions themselves, quite apart from 5G deployment costs and trade talks, have also hit home in recent days. Perhaps the most serious threat to emerge is the negative impact on global standards. Last week, the Financial Times reported that Google had warned Washington of the potential risks to U.S. national security from bespoke, unpatched Android systems on Huawei phones, or from an entirely different OS, writing that “Google argues a Huawei-modified version of Android would be more susceptible to being hacked, according to people briefed on its lobbying efforts.”
Central to this issue is the so-called “splinternet,” a division of internet and communication technologies between the West on one side and an axis of China and Russia on the other. Yes, this might have security implications, but it would also have serious commercial implications for the large U.S. technology companies that dominate the space.
This was echoed on June 10, when Reuters reported that “some of the world’s biggest tech companies have told their employees to stop talking about technology and technical standards with counterparts at Huawei.” The companies involved include Intel and Qualcomm, although none of the major U.S. players wanted to openly discuss internal policy on this. Such moves go beyond U.S. Commerce Department restrictions, with companies explicitly allowed to engage with Huawei “as necessary for the development of 5G standards,” but this simply emphasized the level of confusion that has hit the industry in recent weeks.
Last week, 3GPP, the international body responsible for setting 5G standards, warned of a possibly “dramatic impact” from such division, including the creation of parallel standards between east and west. A spokesperson said that “we cannot speculate on what will happen, but if the current situation prevails—this could have a dramatic impact on future standardization.”
With Beijing reportedly summoning major non-Chinese technology companies to a meeting where they were threatened with the ramifications of adhering to U.S. sanctions, and various Chinese policy threats to the industry as a whole covering cyber assurance regulations as well as their own variants of the “entity list” and “national security export restrictions,” the likelihood of an iron technology curtain is coming to the fore.
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“The U.S. does control high-end technology in many fields,” Beijing mouthpiece the Global Times said in an editorial, “but China is the world’s largest manufacturing base, which has mastered and innovated various practical technologies. The global supply chain cannot operate without China—China is capable of impacting the U.S. supply chain through certain technical controls.”
This is a high-risk strategy for the U.S. Beyond the game-changing commercial impact, a divided internet would remove the liberating impact the web has had in some of the darkest corners of the world, as countries follow China’s lead and develop national firewalls. And so, across both politics and economics, the question of macro priorities is about to become very real.
Meanwhile, Europe has a set of decisions to take. And if governments decide to pay the price and rip Huawei from their networks, only to watch the U.S. backtrack after securing trade talk advantages, one can only imagine the political backlash that will trigger.