A “Digital Iron Curtain” Could Lead to “Real War” Between China and the U.S.
Huawei, the Chinese telecommunications giant the U.S. government fears could be used by the Chinese government to spy and sabotage infrastructure, is a crucial contributor to the development of fifth-generation (5G) mobile networks worldwide. Yet, Washington’s fear led the Commerce Department to add Huawei to its “entity list” in May 2019, forbidding Huawei to buy U.S. goods without permission from the government.
Huawei, which is the world’s biggest seller of telecommunications equipment like new 5G network infrastructure and second-largest smartphone maker, is based in Shenzhen, China. It helps connectivity in some rural areas in the US.
The company’s billionaire CEO, Ren Zhengfei, founded the company in 1987, and it now boasts more than 180,000 employees. Huawei’s ownership infrastructure is vague, though it claims to be a wholly private company owned by its employees.
Washington has not only banned the company nationwide but, also, asked its allies to do the same. In 2018, Australia and Japan banned the company from developing 5G networks. Canada, the Netherlands, New Zealand, and others are mulling similar bans.
The U.S.’s central concern is that the Chinese government could use Huawei to spy, and is concerned the company’s 5G infrastructure could feature backdoors for the Chinese government, allowing Beijing to compromise communications networks and public utilities in the U.S.
In 2012, a U.S. House Permanent Select Committee on Intelligence report found that Huawei equipment could be used to “undermine core U.S. national security interests.” Six U.S. intelligence chiefs, including CIA and FBI directors, warned Americans about Huawei products and “undetected espionage.”
The Chinese government holds considerable influence over all private companies based in China. Many have been pressured to establish internal Chinese Communist Party (CCP) branches and accept state-backed investment. Jack Ma, the Alibaba founder, is a party member. Ren, the Huawei founder – also a party member – served as an engineer in the People’s Liberation Army during the Cultural Revolution.
Under President Xi Jinping, the CCP has increased its influence over tech companies, though Huawei regularly asserts its equipment has never, and won’t ever be, used for espionage. Ren made a rare media appearance, in January 2019, contending he “would never harm the interest of my customers.” Huawei, he said, does not answer government requests for intelligence. The Chinese government, for its part, says it would “take all necessary measures to safeguard” Chinese companies.
The Chinese government and military have viewed Huawei as an official “national champion” since 1996, ensuring Huawei enjoyed easy access to financing and high levels of government subsidies. It received $222 million in government grants in 2018 alone.
Before the Commerce Department ban, Donald J. Trump in 2018 had already banned U.S. federal agencies from using Huawei equipment, and AT&T – due to regulatory pressure – decided to back out of a deal to sell Huawei’s smartphones. The giant Chinese telecom, however, purchases many American goods, including software, chips, and specialty lasers. Days after the Commerce Department’s announcement, Google said it would restrict Huawei’s access to its products, like the Android operating system
The ban could hurt the approximate 1,200 U.S. companies who supply goods to Huawei, and U.S. telecom firms have said that the Huawei ban could slow the development of 5G in the United States, potentially by several years. Huawei owns more patents on 5G infrastructure than any of its competitors.
Experts warn the ongoing trade war between Beijing and Washington could lead to a “digital iron curtain.” Governments worldwide will have to pick between doing business with either China or with the United States. Experts see this as a startling reality.
“Digital production is global and necessarily so,” says Jeffrey Tucker, the Editorial Director and Vice President at American Institute for Economic Research. “Global supply chains and cooperation ushered in the digital age. It’s been transformative. This action by the US uses a massive sledgehammer to reverse this, and the impact is truly devastating for the shape of the world economy and digital technology in particular. It’s a violent imposition of nationalism where none need exist. It is super reactionary and potentially catastrophic.”
Mr. Tucker, who is also the ‘Chief Liberty Officer’ of Liberty.me, believes this will push the world into further trade blocs, and kick-start numerous economy crippling actions, and even war.
“[The ban on Huawei] demands production that doesn’t exist,” he says. “It will require that China and its reliable partners hack together their own open-source operating system. It denies many US companies a profitable market for their products. It puts up a wall in a sector that despises walls and breaks them down. It could eventually lead to real war. It’s a despotic action, and most Americans are completely oblivious.”
He calls the overarching trade war between the U.S. and China unnecessary. “It mostly stems from Trump’s wicked nationalism and grotesque confusions over the meaning of the trade deficit,” says Tucker. “He is trying to reverse the tide of history, doing to world trade what the Soviets tried to do to ocean currents. It is laughably arrogant. At this point, I’m not sure what is more dangerous, the prospect of the Green New Deal or Trump’s attempt to resurrect nationalism in economics. He has learned nothing from history. Sadly, he has all power. The action against Huawei is but one application of that. But it has already profoundly affected our lives. It’s a tragedy.”
Tucker also laments how in May, the U.S. Treasury put out a watchlist not just of companies but whole countries, including U.S. allies. “It’s outrageous,” he says. “On the list is not only Mexico but also Ireland, Canada, Malaysia, and Germany.”
These countries will be next to face Trumpian tariffs, Tucker believes.
“Trump thinks tariffs are productive, which is like saying it is healthy to shoot a bullet into your foot,” he says. “It’s ideological fanaticism at work. Congress should stop everything and end his trade power immediately. The threat is real and grave.”
The stakes are high when it comes to U.S. and China relations. The two are so dependent on each other they’re sometimes jointly referred to as “Chimerica.”
Huawei’s U.S. security lead, Andy Purdy, says that the Trump administration is focusing on the wrong things, mixing up trade issues with security concerns.
“We cannot and should not trust anybody,” said Purdy, who was an assistant U.S. attorney and acting director of the U.S. national cybersecurity division before being hired by Huawei in 2012. “That’s the way we make America safer.”
But, Purdy has urged the government to negotiate with Huawei and come up with a way of ensuring its products are secure, not ban it.
“There are ways to test products for back doors,” he said.
Sens. Mark Warner and Marco Rubio encouraged Secretary of State Mike Pompeo and U.S. Trade Representative Robert Lighthizer in a letter to keep the Huawei issue separate from trade discussions.
“In no way should Huawei be used as a bargaining chip in trade negotiations,” they penned. “Instead, the U.S. should redouble our efforts to present our allies with compelling data on why the long-term network security and maintenance costs on Chinese telecommunications equipment offset any short-term cost savings.”
IHS, a market research firm, says the U.S. ban has already significantly hurt the revenue of certain U.S. component suppliers, such as Micron and hard drive maker Western Digital.
Cover Image: Jiawei Cui