The stupidity and corruption of the Trump administration knows no bounds. Out of the litany of assaults on the great values and cultural institutions of the United States it is the “trade war” with China which warrants the most concern from an economics perspective. The open handed slap at Huawei, does nothing to aid in the large and complex operation of shielding the United States from the risks which Chinese imperialism presents (expansion and transformation). Instead by creating a “technology war” Trump has threatened global prosperity, American jobs and opportunities to keep China as an adversary in check. In short, Trump’s decision to fire salvoes at Huawei will strengthen the hand of a resurgent Maoism.
To explain and justify this conclusion it is necessary to canvass several conceptual and factual issues, as such this opinion piece is a lengthy essay.
The unintended virtue of Capitalism
Proponents of capitalism recognize that there is an invisible hand that works through free markets generating prosperity and negating the underlying intentions of the multitudes of parties engaged in making transactions. Some people embrace an ideological understanding of capitalism that extends past an economic system to mean that greed, rather the being a vice is in some twisted philosophy actually a virtue. This philosophy frequently acquires a Hobbesian twist and through some disjointed intellectual acrobatics can be put forward as an argument that it is a virtue for Western states to have a strong man shoving terms on on other States in order to ensure some obscure notion of fairness. The cognitive dissonance arising from holding “fairness” and “greed” as virtue tends to resolve itself when an unhealthy dollop of white supremacist rhetoric is added – and the resolution is an incoherent myth of victimhood by the right wing. This approach in addition to being fatally ill-conceived and racist loses sight of the impact of unintended consequences and quickly fails to conceptually address the benefits which ecosystems create for participants in that ecosystem.
Whether China is behaving fairly is irrelevant to whether it is in other parties interests to trade with China.
Is China a “capitalist society”
Understanding capitalism and communism as competing economic or political systems is mistaken. Capitalism doesn’t coherently hold as a political ideology (see above). Nor is it exclusively an economic system. Instead capitalism really represents a description of the consequences of having a legal system which respects individuals property and association rights (a capitalist society is dependent on their being freedom of association). Capitalism thus emerges in liberal societies but is not unique to them. Moreover where individual rights are balanced against each other (as in most liberal societies) you can have an erosion of capitalism as property rights find themselves trumped by other rights. Moreover, property rights extend far past merely having the notion of ownership of private property entrenched and extends to have a right to alienate or exchange objects of property ownership as well as the separation of ownership from possession rights and the ability for an owner and prospective lawful possessor to contract for that possession (leasing). Therefore property rights cannot be said to meaningfully exist without a free market, with the corrolary that a free market is a condition in which meaningful property rights exist. Thus spectrum rights in South Africa does not operate within a free market – it cannot be traded; on the other hand there is a free market in respect of land in general.
There are no absolutely free markets in the world. Whether a market can be absolutely free remains an open – and possibly unanswerable – question. There are however markets which are fundamentally free, or free in the first instances – where encroachments on the freedom of the market are the exception or addition to the market. In contrast a market can be fundamentally un-free when the property rights of individuals and associations of individuals are subject to the permission of some thuggish power structure.
Mainland China cannot be thought of as a fundamentally free market society but it is a market economy and to deem it fundamentally un-free is to assume that the Communist Party has the degree of control on Chinese society that it seeks to project. The values which produce a capitalist society are not forged into China’s political structure but to discount the operation of free markets and capitalism within China – and particularly to ignore the reality that the individual Chinese person engages in making rational self-interest voluntary exchanges is a grave mistake. Thus it must be understood and recognized that the notion of China as a monolithic borg like society is a myth cultivated by the government of that country. Chinese people are individuals who have complex political relationships and opinions. There are undeniable sections and blocks within the country. Moreover, it is restrictions on both associative rights and property rights which exclude China from being a “fundamentally free market society” but there are associative rights and property rights (especially concerning use related rights) and the gravest problem is a lack of an ability for any successful entity to unassociate from the Communist Party.
Origin of Huawei is important to understanding its future
The origin and history of Huawei cannot be fully known and it is remotely possible that the conspiracy theory of Huawei as a secret arm of an imperialist Chinese army or some consortium of lizzard people is true. It is also remotely possible that KFC is a secret arm of a pro-slavery movement seeking and the Colonel is really related to the current Whitehouse spokeswoman.
However it is both possible and probable that the narrative which Huawei asserts as to its origin as a capitalist company is sufficiently accurate to give an understanding of the intentions of the company. Rather than giving their corporate editorial I am going to overly a historical backdrop.
After the retreat from Maoism and the managed introduction of limited participation in
China of the mid-1970’s and early 80’s was a country which was being led into liberalization and freer markets. China of the mid 80’s was a country experiencing the teething problems of globalization and democratization (which in essence culminated and came to a head with the Tienanmen Square Massacre which represents to this day the most sensitive political subject within mainland China). One particular realization which China experienced was the fact that embracing technologies dominated by companies in “the West” meant that equipment purchases would remain a barrier to entry. Early Huawei focused on importing equipment but ultimately by 1993 the company had reverse engineered (and quite likely infringed on intellectual property) they were manufacturing network switches for China Telecommunications. In 1997 Hong Kong was transferred to China – posing the most significant test of China’s ability to embrace market liberalization and a capitalist society – and Huawei shifted from importing goods for China from Hong Kong (as it did in its early days) to providing Hong Kong based companies with equipment. But it took some time before the massive assent on the global stage, however for thirty years the company has been at heart a Chinese based multinational (having opened research facilities in India before 2000) innovations firm. I have no doubt that the company, in a similar vain to most multinationals, has engaged in corrupt activities and they need to be kept in check by market and regulatory forces – if indeed the CFO did contravene the law of the United States (as opposed to what the Trump administration wishes the law to be) and the Canadian authorities are satisfied that the criteria for an extradition are met (the offence being one recognized under Canadian law and the fair trial rights being upheld) then she must answer the charges before a US federal judge (and unless she waives jury). Huawei has always been a supplier to the Chinese military. In like manner Nokia has always been a supplier to the Finnish military and Telkom is a service provider to the South African military. The simple reality is that the position is not that of being a military created military contractor (such as Armscor) but rather should be thought of in a similar fashion to Boeing of Jeep or Airbus. Huawei’s participation in a Chinese Industrial-Military-Complex is undeniable, but has never been denied – although it has been downplayed. It is joined by many other firms in a the complex. And this is the most dangerous part of the stupidity of Trump’s approach. While the United States may have a considerable number of factors counting in its favour in the event of armed conflict any deployment of conventional military force against China will drag the United States into a situation that is wholly precarious and will mute its ability to use the threat of military force as a deterrent in other instances – quite simply the United States does not have the capability to without allies deploy their military to constrain both China, Iran, Saudi Arabia and Russia each of whom have their own objectives but ought to be thoughts of as entities with which the US has a need to retain military capabilities as a deterrent. As much as Huawei does pose a set of security and military questions to the United States an attack on Huawei poses a set of security and military questions to China just as an attack on Boeing would.
Huawei, as a company forged in an era when the grave teething problem of the opening up of a new age for China was experienced is not alone. Several firms were established in this 1980’s backdrop and they view themselves as a Chinese industrializing capitalist company. What this means is that they see the economic values associated with capitalism – especially competition and an aversion to central planning and political interference – while having a mission that is tied to the national identity of their shareholders. In fundamentally free market economies (such as the Netherlands, United States, and the United Kingdom) companies often see themselves citizens of their domicile (even when they are multinational firms) and take a certain national pride. Both the Netherlands and the United Kingdom have a prestige system related to loyalty to their respective monarchs. Royal Dutch Shell is not under the thumb of the Dutch Prime Minister but there is a special relationship between British Airways and the government and KLM and the Dutch government. A fully privatized South African Airways – even dominated by foreign shareholders – would still bend backwards to accommodate the South African President and airlines in the United States provide great deference to the US armed services because they think of themselves as American multinationals. Companies such as Sanlam, Avbob and Naspers (whose golden asset at the moment is an interest in Tencent) were founded out of an ideological motivation for Afrikaaner capitalism and self improvement which has evolved into a South African identity inspired “rainbow nation” liberal ideology and I am confident that when Capitec or any other firm accused of being part of the “Stellenbosch Mafia” contemplates how to spend a marketing budget or the like consideration as a South African responsible corporate citizen plays a significant role. Moreover, there are dozens of multinational companies that started as extensions of the government of their home state. SASOL is probably the most pertinent South African example and in telecommunications – especially fixed line – it is the norm that today’s multinational firms have such an origin. Further any multinational company that does business in certain sectors is going to have government and parastatal clients.
Therefore I have no doubt that there are members of Chinese intelligence and former members of Chinese intelligence services in the employ of Huawei. I am equally sure that within the United Kingdom and the United States there will be employees of telecommunications companies who are former or current intelligence service employees. I am certain that Huawei function on a system of affording executives – especially foreign executives – with “handlers”. The company has obscure levels of secrecy and the approach towards ensuring “harmony” frequently fails and results in distrust.
However applying a little bit of common sense about how companies led by people who subscribe to an understanding of economics that embraces free trade, competition and innovation while still having some national pride and fealty to their home country requires us to conclude that Huawei would focus on protecting China against foreign capabilities, rather than on being a weapon. This is for two inter-related reasons: (i) the United States and its allies have a major head start and advantage in capabilities to inflict harm against other nations in respect of Internet-based technologies; (ii) it is actually difficult to sell Trojan horses.
A bit of a look at Huawei’s products and disclosed research suggests that this is the case. Developing a clandestine backdoor is simply untenable, however, if operators outsource their support function to the vendor to remotely manage from abroad its not a backdoor it is choosing to keep the front door unlocked. Operators explicitly or lazily outsource part of their operations to China for two inter-related reasons: (i) lower costs; and (ii) because of Chinese financing. The real threat to international security is not Chinese goods but rather Chinese money. It’s not the fact that there is network equipment in CellC’s network but South African’s should be concerned about financing facilities which the operator announced last year – investors should also be more concerned by the company’s clear lack of strategic vision on 5G (both the technologies and the hype) but I digress.
Huawei’s big gun – 5G intellectual property
The idea that Chinese companies are purely manufacturers and can only imitate and copy is a sinophobic myth. It is true that China has a historical disregard for the intellectual property rights system built into international legal agreements and that there are cultural differences between “the West” and China as to authenticity in originality. But, the simple reality is that Huawei’s corporate park city is little different to Las Vegas in its approach towards architecture – and perhaps many other aspects of being a controlled environment. It is however equally true that in the last two decades the Chineses government has taken major steps towards enforcing intellectual property protections and a significant amount of defensive measures has been undertaken by Chinese multinational companies like Huawei.
While a great deal of coverage has been give to lawsuits and accusations of infringement by Huawei (an entire wikipedia page is dedicated to controversies) in the main the company settles cases, where it has liability, has been ordered to do things by courts which it appears to have done – the US hasn’t blacklisted Huawei for contempt of court – but it has also been the plaintiff in cases where it has been vindicated or the matter settled in its favor. Huawei has a massive collection of intellectual property rights and it is a proper multi-national player that has fully adopted the game of IP haggling and the tactical litigation that follows.
It needs to be understood (and therefore I am reiterating) that during the Mao period China found itself industrializing in line with a pre-atomic age modernist vision – a red brick industrial world that never really existed but more importantly represents a thinking which said that China as a self-sufficient industrialized economy applying the technologies known prior to an information technology revolution could work. While Deng Xiaoping’s premiership shifted the country towards industrializing into an information technology era it did not result in an abandonment of the underlying belief in the importance of internal harmony of a Chinese nation. This means that there continues to exist within Chinese (especially government) thinking the idea that free trade and information sharing is a road to walk along until it becomes a threat to internal harmony or self-sufficiency. More importantly, it means that the Communist Party is adamant to achieve forced technology transfers to China to prevent the sort of activities which are occurring right now. I have little doubt that Chinese companies have amassed a collection of knowledge and information involved in the manufacturing of electronic goods and that their participation in standards bodies and partnerships and the Chinese government has made a policy push towards forcing technology transfers – which is one of the biggest measures which China needs to be tackled on. But, Donald Trump has proved the Communist Party’s rationale for technology transfer and in the process made it more difficult for the international community to address Chinese bad action.
If a person looks at how Huawei participates in international standards organizations and sponsors and attends international conferences and events it is clear that Huawei wishes to be a multinational firm. They are actively contributing to technology standards which improve the ecosystem. Now their activity may be viewed as nefarious or as an embracing of the ecosystem approach demanded by the global Internet and 5G technologies. Either way, the invisible hand makes their intentions pretty irrelevant and the outcomes of progress in technology are extensive.
It is impossible to discuss 5G without discussing Huawei. While there is a considerable degree of mythical hype emerging from marketing and sales teams (and stupid elements of the press), the importance of 5G cannot be overstated – even if it is clear that the South African MNOs (mobile network operators – Vodacom, MTN, CellC, Telkom and RAIN) and government have set South Africa back considerably through their greed and short-sightedness. The simplest – almost definition giving – explanation of 5G is that it is the “fifth generation” of network technologies within the ambit of the 3GPP’s (3rd Generation Partnership Project) interest (using Release 15 as the sort of reference point). However, the biggest myth which MNOs like to perpetuate is that 5G is about mobile and cellular – it isn’t. The real change between the third and fifth generation is the movement away from a situation in which an MNO is assigned spectrum by a government, raises capital and installs equipment and deploys a monolithic singular network using that spectrum which it monetizes through charging for services. The move is towards a situation in which you have an ecosystem of network elements of a different nature running in many instances on COTS (commercial off-the-shelf, essentially standardized multi-vendor hardware that can readily be acquired, think servers that you find in a data centre) hardware that provides for different service providers (with different backgrounds) to interoperate and in an ecosystem in which the various tools for AI and SON (artificial intelligence and self-orchestrating networks – so you can have considerably more complex networks and you can actually step past one of the biggest problems with the Internet Protocol on network performance) become absolutely necessary to deal with the millions of connections between users, data and devices that is made. Whereas 3G networks were a VAS (value-added service) which telephony centric MNOs built to sell a lucrative service to clients, in 5G it is necessary to speak about network function which is virtualized (hence discussions about NFV – Network Function Virtualization), SDN and an entire acronym soup. Importantly though what has been imported into the 4G (and therefore 5G) space is sets of technologies developed outside of the “telco world” in the “Internet” and “computer” world. Now in my view the 3GPP made a mistake in Release 4 by seeking to forge an “all-IP Core Network” (and “Next-Generation Network” hype) and one of the defining characteristics of 5G is the subtle abandoning of idea of a homogeneous “all-IP Core Network” and replacing it with the idea of an “all packet intelligently switched and managed core network capability” – but diving into what I mean is a considerably longer technical discussion beyond the present scope (of an already long essay). It is relevant to understand that while the best effort Internet is a miraculous experiment part of its success has been its ability to run on top of stable carrier-grade networks.
To apply a bit of an analogy: a multitude of amateur enthusiastic people concocting obscure boxcars and bicycles will generally produce better (particularly cheaper) box cars and bicycles than a constrained team of civil engineers who are wanting perfect (but unaffordable and never delivered) boxcars. The enthusiasts though would be no good at building the road and while I will happily climb into an amateur’s box car I am not going over an amateurs bridge that crosses a high gorge. But perhaps the best description of what 5G really represents is that it is the application of the Unix Philosophy to telecommunications networks while recognizing “old school engineering” best practices.
So why does Huawei feature so strongly in 5G and how do operators act as a check against Huawei abuse? There are two major features in Huawei’s ascendency: Firstly they have spent a considerable amount of resources on research, on participating in developing 4G and 5G technologies (China actually mistepped a little bit with regard to 3G and was part of the CDMA variant – this is in my analysis partly why they dived into the misstep in 3GPP Release 4) but above the amount of money spent Huawei’s leadership has forged a cult-like thinking within the company that it is not a manufacturers of telecommunications switches or cellular equipment but rather is an innovations technology firm (this may mean that he is a Bond villain or egotistical prat as found in some other innovations company’s but it could also mean that deep down he is an experimenting engineer who had he been born in California could well have turned into a barefoot hippy-esque associate professor at Stanford). Secondly is the fact that the technology shifts which have been happening align with Huawei’s approach towards technology. In essence, we have entered into an age where on one hand some buyers are taking the best performing or cheapest component from whichever vendor and on the other, we have an age where the buyer really want an off-the-shelf fully done solution. Huawei offers both, they manufacture good and cheap (in some instances really good but not cheap and in others really cheap and good enough) options to form part of a mix components while aggressively selling an all Huawei solution to the market. The result is that a person will battle to find any network operator in the telecommunications space that doesn’t purchase from Huawei (even outside telecommunications you are likely to find some Huawei components) and you will find some that are totally on Huawei and vendor-locked by convenience and incapacity more than anything else. Therefore MNOs can best ward off the threats inherent in business with Huawei by: (i) being honest with their shareholders and the public – especially about the fact that their business models are not presently sustainable and need to evolve; (ii) employing and training people – the dishonest exercise of culling human capital in order to hide other problems in a business and going on vanity hiring sprees when there is money to flash means that quite simply few MNOs have an adequate employee base with which to avoid being at risk of being at the mercy of one or more vendors – and it is not only network engineers or technicians that are at issue; (iii) perhaps most controversially to some of the executives within the organization (I can imagine that certain executives at the MNOs will be fuming at the suggestion of honesty and treating staff as a valuable asset, but this really will be controversial for them) actually developing a meaningful 15 years vision and strategy that doesn’t boil down to blaming government or pillaging users.
A person can speculate on how much original research and how much corporate espionage and other shadiness Huawei has been up, but the simple fact is that Huawei is in the big boy research and patent registration league. This doesn’t mean that they don’t infringe on other players intellectual property, but it is worth looking at one of the most important judicial decisions that went against Huawei but gives them considerable power – namely the Unwired Planet v Huawei saga. In essence, an English court can be approached for an injunction (an order preventing somebody from doing something) against a company for patent infringement in England (regardless of where that company is based) and that ultimately an English court can set global royalty terms. Therefore if Alphabet (the owner of Google) and Amazon infringe on Huawei patents their English (or Irish, and the Republic of Ireland is likely to find the English courts view applicable to their own jurisdiction and many multinationals have a considerable asset base in Ireland) operations could be used to drag them into a court finding royalties are payable to Huawei in no small amount. Moreover courts in Europe (including the United Kingdom) could find themselves having to find that organizations and companies that have been working with Huawei and are suddenly cutting of access to the fruit of that cooperation to be in breach of contractual commitments and to provide some equitable remedy – in some instances the contracts will provide for suspension or termination in the event of the sort of nonsense Trump has undertaken but in others no such provision will apply and even where they do exist these clauses will seldom disadvantage Huawei and could end up with some fairly expensive consequences for the party. Quite simply any instruction from the Trump administration on companies to sever their ties with Huawei permanently can lead to messy divorces in courts and not courts he controls (in which I include US courts).
Now there has already been considerable coverage of announcements and rumors of severance and two PR machines are hard at work: one from Huawei which is revealing in the extent to which it shows a company that is not whining about being treated unfairly but rather is going on ahead with their innovations; the other is one hoping that a nail in Huawei’s coffin will surface. We are therefore seeing considerable press coverage attempting to be balanced and releasing information about consequences as they happen. These developments each have their own bit of nuance and in respect of the SDCard Alliance, for example, I believe divorce is inevitable and Huawei has been withdrawing from that organization for a while. Android is the most interesting situation.
Android, the big news
I strongly suspect that Huawei has been working on operating system development from the same perspective as Intel historically has – namely as from the vantage of a CPU maker. Huawei wholly owns HiSilicon which designs and manufactures system-on-a-chips (based on the ARM architecture, to which I will return). HiSilicon does not exclusively focus on smartphones and the ties to Android as a platform are really driven by the consumer was. Huawei has contributed to the Xen project and OpenStack.
Therefore consider the scenario in which Huawei properly introduces OS-level virtualization on their next generation Kirin processors such that your purchased device can deploy Windows 10 (running on ARM64), or ChromeOS, or Android or a fuller “made for China” OS stack (which will be greatly supported by Tencent – which is a whole article on its own and touches on Naspers and Multichoice), or any one of several Linux distributions – thousands of people choose to install alternate firmware to standard Android even when unsupported and being able to simply test dozens of different flavours is remarkably useful. This feature might sound like a nice to have and it may be asked “why would I want Windows 10 on my phone” but consider that ARM64 based laptops have considerable potential – especially in an always-on 5G enabled world and the reason both Microsoft and Canonical (the company behind Ubuntu) made desperate efforts to achieve a universal operating system is not difficult to see. Huawei I believe has the best shot at achieving this.
However, the situation is even more powerful in a dystopia corporate environment which wishes for employees to either bring their own devices or has the risk the company issued devices will be used for personal purposes regardless of instructions. It becomes entirely possible for employees to upon walking into the parking lot of their place of work see their device reboot from their “personal” Android OS instance into the companies Google free OS until the time they leave their place of work. The ability of a company to absolutely police computers within their network is huge. And the fact that the mobile phone as a limited form factor doesn’t change things, consider a situation in which enterprises equip desks with large display units and keyboards and you have operational areas where AR headsets are available. Whether you dock you Mate 40 phone or your MateBook 6 or your MateTower (a prediction of the sort of devices they will bring out) or whatnot doesn’t matter. It also becomes possible for a person to boot into a virtualized OS on one device shut down from that device and move to another.
More importantly, though is the fact that HiSilicon also makes servers. As earlier indicated a critical component of 5G deployments is NFV and Huawei have already invested heavily into their FusionSphere which cannot be assumed to only be targeting orchestration of systems based on processors Huawei doesn’t manufacture (the x86-64 architecture). This is also part of the paradox of Huawei’s success: the company will be able to sell enterprises an off the shelf all component surveillance capable technology system if they want to buy that while also being able to sell hardware to people and businesses wanting to run away from any notion of a walled garden.
For Google, this would mean that discussions as to interoperability on the hardware will be needed. The two parties could actually entirely move away from the providing of supplies to Huawei (and thus the inclusion on the entries list) as occurs with Huawei deploying Android as an OEM. By instead enabling a Google user to on their new Huawei devices sign into the Google platform and install the Android instance as a virtualized OS on their device. Similarly, it would mean that Microsoft would tailor a Windows 10 on ARM development for enterprises or Office 365 credentials and not provide Huawei (or any other vendor) with OEM licenses.
The move by the WiFi Alliance is similar to the SD Card Association. Huawei is significantly more invested in the 3GPP and what the move may result in (to the detriment of the industry) is Huawei throwing its weight behind the idea that Wi-Fi can be jettisoned as a WLAN technology, but that is another messy discussion to have. The 3GPP and GSMA seem to remain in standby mode for a definitive response as is ETSI. Therefore the big instrument hitting at Huawei is, of course, the announcement for ARM which is the company that is responsible for the architecture of the processors in the vast majority of smartphones (and which Huawei is dependent on).
But here is the main issue: ARM is a British entity. Their chief shareholders is a Japanese company and ARM is multi-national with some research work being US based. It is fully within the parameters of the English courts. Thus absent clear language in any licensing contracts it enters into it cannot rely on the fact that the government of the United States has decided to be irrational as a full excuse for non-performance of undertakings it makes. Huawei has already fully developed several processors and the rumors thus far have focused on breaking off working together rather than ARM seeking to prevent Huawei from manufacturing what is already developed. This should come as no surprise. It is likely that if ARM were to attempt to block Huawei from using their architecture that they will have to explain their own conduct to the courts and risk the courts determining some manner of worldwide royalty terms. Assuming that the English courts don’t find for Huawei or if ARM defies the courts or stonewalls or the like it is foolhardy to assume that Huawei does not pose considerable technical knowledge already. Therefore it is Huawei’s participation in a global rule of law economy that is the reason it will not simply massively produce infringing material and dump the same illicitly onto the market.
As indicated earlier, if the suspicions of Huawei (which I do not share) as an arm of the Chinese state are accurate then the argument against Trump’s Philistine approach is actually more severe. It means that not only is Trump compelling the Western world to wage a technology war against a company but that he is, in fact, inviting the full Leviathan of the Chinese state and that the route to “nuclear options” is on path. Even on my understanding though, it is clear that Trump is marching the world towards the use of “nuclear options”. Let me start with Huawei’s nuclear option.
Huawei’s nuclear option is twofold: (i) withdrawing from the various standards bodies and SEP developments it is making; and (ii) simply manufacturing on the technologies it can (not may) without regard for intellectual property rights. This nuclear option is inevitable if international firms infringe on Huawei’s sizable intellectual property pool with impunity.
It is my hope (and partial belief) that Huawei is being the bigger party here and will be using the courts in the United States and other countries to defend the Rule of Law. But make no mistake, the various Chinese firms that emerged together with Huawei in the liberalization of the 1980s are jointly able to manufacture all manner of needs to the Chinese technological revolution and these firms will either be motivated by their identity (as Chinese capitalist companies) or through nationalization by the Chinese government.
This brings us to the Chinese nuclear options. China holds a considerable volume of US treasury bills and any major sale of the bills would inflict considerable damage to the United States. Moreover, China manufactures so much that the US – and other nations – are dependent on that retaliation of a severe nature is very possible. China thus has two major weapons to deploy simultaneously: the Chinese government can impound goods due for export and nationalize companies (like Huawei) and pay out US Treasury instruments as compensation. Thus far we have not seen China deploying aggressive cannonball type responses, instead of seeing surgical responses aimed at keeping the US in check in a calculated escalation strategy. The real problem which the United States faces is that the longer the country falls under the spectre of a buffoon and wages stupid conflicts across different sectors the more powerful China’s chief countermeasure against the US is. Quite simply Trump-ism is a constant eminent risk to US national security.
Of course, the use of China’s nuclear option will inflict considerable damage onto China as a participant in a global trading environment. But this is also a problem which simply isn’t a reason to assume that China won’t keep this nuclear option in play. The Communist Party is preoccupied with fostering a notion of internal harmony. Therefore a carrot of improved harmony and place in the world is far stronger than the stick of isolation. The nuclear option will mean the rise of a new Maoism in China and a greatly damaged United State (and probably a chuckling Putin).
Ceasefire, Truce or New Treaty?
An addition danger posed by Trump’s approach towards the problem of China is that a retreat by anybody other than China will be more adverse to global interests than had he not started a trade war in the first place. There is a very real need for the United States and China as well as the rest of the world to forge a new agreement reflecting new realities. It needs to be realized that the Obama administration was largely seeking to forge a medium-term truce that constrained China’s incentive or ability to perform currency manipulation while ignoring China’s various efforts to achieve a “made in China 2035” self-sufficiency. With the Rubicon having been crossed and a trade war being underway the opportunity to think in terms of a real treaty should be taken up.
Most of the world wish for an environment of free, fair and level-playing-field trade. China values the ability to be fully internally harmonious and self-sufficient. In truth though most people wish for their nation to be capable of self-sufficiency and to have internal harmony within their nation. In equal truth, most Chinese people – and certainly most “Chinese capitalists” wish to be able to trade in a free market on a playing field that is not sloped against them. What this means is that in the main what is desired, by all but the most rabid of imperial nationalists, is a situation in which different national states preserve a certain national harmony and self-sufficiency while voluntary mutually beneficial trading transactions occur. It is worth keeping in mind that a transaction can be mutually beneficial and voluntarily entered into as a win-win outcome with one party benefiting more than the other.
The situation concerning Hong Kong after 2047 needs to be given very careful consideration and both the United Kingdom and the United States have a special responsibility to the people of Hong Kong and a dismantling of Hong Kong will have major adverse ramifications for the global financial system. While 2047 may feel like a lifetime away as that deadline approaches encroachments on the character of Hong Kong by the Communist Party become more brazen and the very foundation of international trade with China and the special economic zones is presently at threat. While enjoying expansion in the early 21st century the zones are in recent developments under threat. Equally, the ensuring that the Communist Party does not stray into further undermining Taiwan and Tibet should be extended into forging a path forward. I am not advocating sovereign independence of those political entities or a straying away from the “One Country” tenant of Chinese nationality. On the contrary what is desired is to reinforce the success of the “One Country, Two Systems” experiment as the course by which China maintains full internal harmony and grows itself into self-sufficiency. What Trump’s moronic rattling is doing is undermining the message that the experiment has been a success for China’s core objectives. What the international community, and especially those governments which have close relationships with the Chinese government, need to be doing is reinforcing China’s value of being in an international tent while warning them that they shouldn’t be urinating all over the show. The Zuma administration’s abysmal conduct in the question of prohibiting the Dalai Lama from entry into South Africa is an illustration of what governments should not do for exactly the same reasons that Trump’s anti-rule of law approach is so dangerous. What the South African government needed to do (and other similarly placed governments need to do) when faced with this sort of situation in which the Communist Party has a view – expressed subtly or quite explicitly – is to recognize the view … Had the spokesperson for Home Affairs staged an event at which it was said: “A private organization has invited Tenzin Gyatso to attend an event in South Africa and as Mr Gyatso requires a visa to enter the Republic an application for same was made to the consular section of the High Commission to New Dehli. Mr Gyatso is a prominent international figure and religious leader and as a result the Department had to make various consultations prior to a determination being made at a senior level. We have received representations earnestly made on behalf of the Government of the People’s Republic of China as well as numerous other interested parties. We understand the sensitivities of the matter and appreciate the good will between the people of South Africa and China, it is the spirit of friendship and a mutual respect between our respective governments of sovereign states that our governments consult on matters of concern but ultimately decisions are taken under the framework of our respective legal systems. As a result we have concluded that as there is no impediment to preclude the issuance of a visa to Mr Gyatso as a private, albeit prominent, person that a visa ought to be issued on that basis.” In the end the Zuma administration being seen cow-towing to China was an embarrassment for China because inevitable litigation and examination followed. The real concern of the Communist Party is always the appearance of harmony which embarrassment and being portrayed as petty doesn’t aid. It is the responsibility of those who are able to, to speak truth to power. It is wrong for those with power to abuse their power as Trump does. This is a moral and ethical issue, but it is also a realist political and economic one. China is a threat as a bad actor, measures to constrain bad action seldom are served by inflicting erratic violence. There are many things to criticize the Obama administration for one area where Obama is unjustly lambasted is in his approach to playing chess with China. Sadly after 2016 a pigeon has decided to knock over the pieces and leave droppings on the board.
So returning the Huawei
There is a rational basis to impose reasonable restrictions on the use of Huawei equipment in mobile telephony networks around the world. There is equally a rational basis to require that essential component of telephony networks not be provided by any single vendor. 5G is an ecosystem and standards compliant equipment from multiple vendors is envisaged. The sort of reasonable restrictions that can be justified would include prohibiting operators from outsourcing management of their networks to vendors and maintaining properly staffed Network Operation Centres (NOCs) – the march to 5G and disaggregation of ownership of different network assets doesn’t detract from the importance of accountability and control being clear as to any given network function.
For various technological reasons – latency factors in particular – the idea of Huawei kit being able to by mere installation offer the company or the Chinese government some sort of super back-door that can be used for spying purposes is ridiculous. What is not ridiculous and represents a very real concern is the likelihood that in a situation where the management of a network or the providing of remote support is undertaken by Huawei as a vendor is that you will have a problem of a foreign power having the means by which to undermine or interfere with a network and large body of network assets. This is not unique to Huawei or 4G equipment. Consider the situation where an ISP rolls out CPE (customer premises equipment) which can be remotely managed through TR069 (a technology widely deployed to manage routers and gateways and the like within homes remotely) – or in the 5G world of the future TR369 (better named Universal Services Platform and greatly enhanced – in some scary ways) and then decides to perform that management from Russia. This happens at the moment. Countries should consider cybersecurity holistically – but by using cybersecurity as a ruse Trump has set the world on a path in which a choice between some nationalistic vision of cybersecurity and development will see many countries choose dependence and development and will see others moving towards violent nationalism.
Some thoughts on what can be done to achieve net positives
As indicated earlier I am quite certain that Huawei has a strategic vision concerning operating system virtualisation on HiSilicon systems in both the server and consumer device spaces. It would be most beneficial if Huawei formalizes such a project outside of China in a partnership type agreement that brings into the fore ARM, Suse, Microsoft, Google, Canonical and third-party hardware manufacturers (particularly MSI and Asus). Ultimately the project should be within the parameters of the Linux Foundation but two factors need to be considered – (a) until the United States can be a trusted actor the Linux Foundation falling within its jurisdiction is problematic; (b) the developments required for OS instances is still within a space necessitating more development work than the more mature projects within the Linux Foundation. There are clear advantages for Google in terms of the alleviating competition concerns currently placing Android under scrutiny in Europe especially if Huawei remains likely to be the largest manufacturer of mobile handsets within half a decade. What is needed is to continue to give Huawei an incentive to look outwards. ARM and their chief Japanese owner SoftBank have an opportunity to strengthen Taipei and disincentivize cross-straits aggression.
Further, the aviation industry needs to fully incorporate 5G technologies and it is inevitable that complex relationships between telecommunications vendors and aircraft manufacturers will be on-going but this also needs to be viewed with an understanding of China’s objective of having self-reliance capabilities. It is not that China wishes to avoid using Boeing and Airbus but rather that they have the capability to do so. There are significant orders for aircraft from Chinese airlines and Comac will be well served by seeing orders from abroad – thus creating a situation where rather than an insular approach of Chinese airlines flying Chinese manufactured planes international airlines fly internationally manufactured planes. I mention aviation because there are dangers with the current landscape involving Airbus and Boeing falling into a state in which there is insufficient innovation and competition – consider the plays in the regional jet manufacturing industry. Aviation therefore presents a space in which proponents of capitalism are able to navigate.
Finally rather than sabre rattling nonsense we need to be addressing real concerns as to the interconnection between Chinese expansionism, Chinese banking, Chinese technology and the developing world. The biggest policy failure of the United States has been to create a landscape in which operators in developing nations are outsourcing the entirety of their business in an irresponsible manner. There is no reason to be concerned about a network operator that has half of its network assets acquired from Huawei or ZTE or the like but there is a great deal of concern about a network operator who has is wholly indebted financially to a Chinese development bank who funded the acquisition of certain key network assets from Chinese manufacturers. Far more than announcing that Huawei will never be involved in spying the company needs to show an intrinsic global commitment to avoiding putting network operators into a vendor locked debt trap. This entails forming relationships with non-Chinese financial institutions and using their political capital within China to lead Chinese financial institutions to promote a multi-vendor approach to financed network asset acquisition. It also requires the company to invest in training for network engineers outside of China. Africa doesn’t simply need equipment and infrastructure capital in order to participate in the “fourth industrial revolution” we require improvements to our human capital, we require skilled network and software engineers.
The assault on Huawei has nothing to do with punishing Huawei for any alleged sins of Huawei or because of the company’s excellence. The assault on Huawei is because Trump is a moron who doesn’t understand how market economies work. It is because Trump hopes that by being a thug he can extort both Huawei the company and the Chinese government into placating his ego. Ironically egoism is a problem in how to deal with the Communist Party.
Trump’s moves could undermine Huawei’s key innovative strength by forcing the company to turn its focus away from engineering and the “fourth industrial revolution” as an international exercise and towards serving the survival of the company and China. This outcome contradicts the very American values Trump is supposed to uphold.
The alternative to embracing a globally connected world in which China exists as an integrated superpower is to see a China that becomes more insular with a resurgent Maoism that will dismantle the economic liberalization of the last four decades. The very pressures on China to open itself to an industrial project have largely been overtaken by China’s success at modernizing. Paradoxically this means that there is a greater pressure on China to abandon the project it has been on and adopt a new form of Maoism in which it is not the red-brick communism of a pre-atomic age industrial world but rather the communism of 1984 that can be sought.
For this reason – if no other – rational actors should do what they can to steer the very idiotic trade war away from its far extremes and to seek some silver lining.