Huawei ban results in collateral damage for US-China trade negotiations

On Wednesday, May 29, President Trump signed an executive order barring transactions with foreign firms deemed threats to national security. Most notably, Huawei, the world’s largest telecom equipment company, was blacklisted, requiring U.S. government approval for any future transactions involving American technology. This wasn’t the first time Huawei has been targeted by the U.S. government. Huawei leads a long line of supposed infractions dating to the early 2000s, with Cisco going so far as to accuse Huawei of stealing their source code.

Last November, Canadian authorities arrested Meng Wanzhou, Huawei executive and daughter of founder Ren Zhengfei, at the request of U.S. authorities on suspicion of violating the Iran trade sanctions. While the U.S. rolled out two dozen charges against Huawei in January, Poland arrested a Huawei employee on allegations of espionage, further strengthening pre-existing suspicions of ties to the Chinese Communist Party.

China’s reputation as a fair player isn’t stellar; time and time again both Chinese firms and the Chinese state have been accused of IP theft and cybersecurity attacks against Western institutions. To make matters worse, in 2017, a broad Chinese intelligence law was passed, possibly beholding entities such as Huawei to comply with any investigation perceived as a threat to Chinese national security.

However, as of yet, there is no concrete evidence that Huawei has been building “back-doors” to its products for the Chinese government. Nor is there evidence that Huawei executives are that asinine. We can think back to when Apple fiercely defended its brand, defying the FBI’s request to unlock an iPhone belonging to one of the San Bernardino terrorists. As a Huawei executive put it, the existence of such a feature would effectively be “commercial suicide.”

Further, in light of President Trump’s willingness to invoke protectionist policies in the name of national security, Huawei’s status as a threat is questionable at worst. Justifying combating China’s rising technological dominance and capabilities as a centerpiece of U.S. foreign policy is debatable. However, in economic terms, banning Huawei is sure to bring damaging collateral effects. Because Huawei buys more than $11 billion worth of goods from the U.S. each year, an outright ban could lead to tens of thousands of jobs lost.

The U.S. government has been trying, albeit unsuccessfully, to convince their European counterparts to give up business with Huawei. Unfortunately for them, Huawei’s superior technology and price prove too attractive; in many cases, Huawei undercuts its competitor’s prices by tens of percentage points or more, fostering accusations of dumping. Because of such a significant price disparity, ditching Huawei would produce chain effects on price, hurting economic activity and slowing the transition to 5G.

If the United States and the rest of the world believe that the threat of potential widespread Chinese intrusion is credible, it needs to work on diversifying global supply chains away from China. Banning one company produces no security benefit.

Looking at the bigger picture, it is possible that Huawei could be used as a centerpiece on U.S.-China trade negotiations. This week, Chinese state media suggested that China may be looking to curb exports of rare earth metals, adding fuel to the trade war fire. As the trade war continues to heat up, with retaliatory tariffs enacted by both sides, the U.S. and China have ensured that the world is staring down an economic slowdown. For our sake, the U.S. must tread carefully to prevent any potential far-reaching economic consequences.

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