U.S. vs. Huawei: This skirmish is really about a bigger war

The recent escalating legal events between the U.S. government and Chinese telecom giant Huawei are much deeper than what they appear to be. It is not just another skirmish between a government and a multinational telecom, because in this case, the stakes are higher and the result could even possibly lead to a change in world order. In fact, the U.S. vs. Huawei is really more about U.S. vs. China.

U.S. government’s indictment of Huawei

The U.S. Justice Department has indicted Huawei on the following counts.

In the first indictment, the Justice Department charges Meng Wanzhou, Huawei’s chief financial officer and daughter of its founder, with illegally transferring technology to Iran. This indictment states that Wanzhou sold U.S. technology to Iran through a shell company, which is against U.S. laws. Also, she reportedly has eight passports and this has raised concerns about her role and the possible implications for U.S. security. This is why she was arrested in Canada.

The second indictment charges Huawei with stealing the testing technology of T-Mobile. According to the indictment, a Huawei employee entered a T-Mobile testing lab and stole a proprietary robot arm used by T-Mobile for testing the quality of smartphones sold to the public.

This incident is sure to raise many questions, the foremost of which is how a Huawei employee had access to a T-Mobile testing lab in the first place.

Well, let’s step back a bit.

The indictment states that T-Mobile granted access to its testing lab to a handful of Huawei employees under a nondisclosure agreement way back in 2012. Around mid-2012, Huawei started putting pressure on these employees to get more details about the testing technology used at T-Mobile testing labs.

Since the Chinese employees were not successful, Huawei was believed to have brought in an engineer from China. Huawei employees allegedly gave this engineer illegal access using their badges. By April 2013, T-Mobile contemplated banning access to Huawei employees and after a few months, decided to restrict access without going for a complete ban.

One such Huawei employee allegedly stole the testing robot’s arm and put it in his laptop bag. Overnight, he analyzed the testing process, took photos and returned it back the next day, saying he took it by “mistake.” When this incident came to light, Huawei ordered an internal investigation and sent out an email to its employees that such behavior is not acceptable in the U.S. But federal prosecutors contend that they have enough proof to show that Huawei’s U.S. subsidiary actively took measures to steal T-Mobile’s technology.

To top it, U.S. intelligence has raised concerns that Huawei smartphones can have backdoors to help Chinese espionage.

Huawei has denied all these allegations.

Regardless of whether these allegations are true or not, what is most striking is the timing of the indictments. In recent months, the relationship between China and the U.S. has taken a beating over trade wars, influence in the Asia-Pacific region, and other disputes. In the light of such a political scenario, these indictments are not just another standoff between a multinational company that violated U.S. laws and the U.S. government. Though in the past, the U.S. government has fined multinational companies for violations, it is not the same this time.

Why?

Complex China-U.S. relations

Though the relationship between China and the U.S. has been one of unease over many decades, it has nose-dived after Americans elected Donald Trump as their president. It is not just due to the policies of Trump, but also due to many larger factors that are at play here.

Tech supremacy

This relationship’s complexity is strongly rooted in the battle for tech supremacy, specifically the rollout of 5G technology.

5G technology is the next big leap in telecom as it can deliver speeds unheard of today. These networks are capable of streaming data 100 times faster than today’s 4G network. Such speeds can power a wide range of applications such as driverless cars, machine-to-machine communication, IoT, artificial intelligence, blockchain, and so much more. In addition, it has the potential to change military warfare with pilotless flights and drones. It also brings huge economic benefits, as it has the potential to create three million jobs, generate $275 billion in investments, and $500 billion in economic impact.

This is precisely why the U.S. wants to be ahead of China, but in reality, it is lagging behind. A report by Deloitte shows that China has been spending $24 billion more than the U.S. since 2015 and has built 350,000 new sites compared to the 30,000 sites built by American telecom companies. That’s not all. China’s five-year economic plan specifies spending $400 billion in 5G-related investment and the Chinese government has forced its top three telecom companies to work together to bring 5G network to its residents. Due to all this, Chinese companies are on track to start commercial-scale deployment of 5G services by 2020,

Another report by Eurasia Group estimates that China alone will control 40 percent of the 5G market.

To make things worse, Huawei launched a chip during the third week of January, which it claims to be the world’s largest 5G modem.

The U.S, on the other hand, is yet to auction bandwidth for 5G and policymakers should take charge to jumpstart deployment. In the 5G readiness index developed by CTIA, China sits at the top, followed by South Korea, and the U.S. is in the third spot.

Political struggle for dominance

At the heart of it all is the struggle for dominance between the two technology superpowers and this has led to intense political debates as well. The U.S. is concerned about its economy and national security, especially as fears of Chinese espionage has grown over the last few years. China, on the other hand, has ambitious industrial, technological, and economic goals, and it believes 5G can give it a big advantage.

Above everything, China stands for almost everything against the principles of Western democracy, and this is what is making the U.S. so uncomfortable.

It is important to note that China is not the only country that is making rapid strides in 5G technology. Germany, South Korea, and Japan have made rapid progress too in this regard, but the U.S. is not so concerned about these countries as they are largely seen as allies.

The growth of China and its possible supremacy in the ground-breaking 5G technology could have implications for the long-term balance of global power, and this is what makes this standoff so significant.

Impact of the standoff between Huawei and U.S. government

Though this standoff is a part of the three-dimensional chess game between China and the U.S, it nevertheless can impact the use of 5G technology as a whole. If this political turmoil continues between the two countries, it is likely to impact the rest of the world in the following ways.

Delays deployment

Currently, the U.S. and its allies have not included Chinese networking equipment suppliers in their 5G alliance, as they are aiming for a China-free 5G alternate. Considering the advancements made by China, this move is likely to delay deployment in many countries. This is because the suppliers of these countries have to invest in new manufacturing capacity needed to introduce next-gen networks and devices, instead of using the readily available ones manufactured in China.

Non-interoperable technology

China’s isolation could lead to the development of two separate systems that are incompatible and interoperable, thereby creating two politically divided technology ecosystems, one backed by the U.S. and its allies and the other by China.

Both governments will use their might to force countries to accept their respective networks, and such a scenario will lead to greater political divide world over. China could wield influence in Asia, Latin America, Africa, and the Middle East through the Belt and Road initiative, while the U.S. has already convinced many of its allies like Australia, Canada, the United Kingdom, and New Zealand to stay away from China and its 5G technology.

Economic costs

From an economic standpoint, such competition does not benefit anyone, as it will lead to lower economies of scale and high transaction costs for both the user and equipment provider.

Shift in capital and manpower

Currently, China has a big head-start in 5G technology, but the U.S. has the innovation capacity to create more 5G-based applications and use-cases quickly. This would lead to a virtuous cycle of 5G applications that would lead to more innovation, and attract capital and manpower. Whichever country gets to these 5G applications first, has an economic upper hand over the other.

“When countries lose global leadership in a generation of wireless, jobs are shed and technology innovation gets exported overseas,” says Roger Entner, founder of Recon Analytics.

So, it is clear that 5G dominance is key to the future of both China and the U.S. But how exactly each of these aspects would pan out depends on a host of related developments.

Considering these aspects, the standoff between Huawei and the U.S. government is significant and it will be interesting to see what will happen when 5G becomes a reality.

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