Global Trend

Over the past year, the U.S. Departments of State, Defense, Commerce, and Justice acknowledged that Huawei Technologies Co. was and is not primarily a business enterprise in the conventional sense.  It is a strategic weapon, subsidized by Beijing with a mission to install 4G and 5G telecommunications systems around the world.  Its platforms deliver dramatically more bandwidth in order to deliver more data, faster.  Very quickly these 5G networks will become the digital spine within a hyper-automated world filled with trillions of devices. In the race to the digital future, Huawei had, until recently, left rivals behind.

As recently as a year ago, an estimated two-thirds of the world’s nations were in the process of adopting some or all of Huawei’s networking technologies.  This, along with China’s $1-trillion Belt and Road Initiative, represents a multi-pronged existential threat to the economies and democracies of the world. 

Importantly Huawei’s rise was not part of a conventional mercantilist strategy.  It was the lynchpin of a clearly “martial strategy.”  Its 5G operating system is closed to competitors (like China’s military dictatorship is closed to political opposition), and its top-down architecture is designed to provide a plug-and-play framework tailor-made for autocrats to surveil, propagandize, and control societies. Huawei coupled with the Belt and Road Initiative is the 21st Century’s version of Homer’s Trojan Horse.

In 2017, the U.S. government finally took action and targeted Huawei, along with China itself, for transgressions including unfair trade practices, data theft, and intellectual property theft. This counterattack has escalated and, more recently, Washington has barred Huawei from its marketplace and pressured others to do the same, while forcing the sell-off of Chinese platforms like TikTok, and blocking Chinese access to U.S. technology. Faced with such onslaughts, Beijing and Huawei argue that these measures are unfair and motivated strictly by economic competition.

Unfortunately, the United Nations and the World Trade Organization have been ineffective in bridging China, due to its heavy influence. And the Chinese have also attempted to politicize the international standards organizations that govern the Internet itself in an effort to award itself advantages; without success, so far.

Up to this point, the tussle between the superpowers themselves is center stage. But the collateral damage continues, involving corporations as well as nation-states. For instance, Huawei was founded by a former military officer, Ren Zhengfei, and one of its first targets was to acquire the advanced technology developed by Nortel, a Canadian company that had 20 years ago become a worldwide pioneer in network design.  The story of how this company’s technology disappeared into Huawei was described in a Bloomberg investigative piece earlier this year.

In 2018, Zhengfei’s daughter Meng Wanzhou, who is Huawei’s chief financial officer and deputy chairwoman was charged by American officials with fraud and sanctions violations. That December, she was arrested on an American extradition warrant by Canadian officials while changing planes in Vancouver and has been under house arrest and a series of extradition hearings was held in Canadian courts.

But China retaliated immediately after the arrest by jailing two Canadian businessmen. They are hostages and for nearly two years have not been charged or given access to their families or lawyers. China demanded that Canada ignore its extradition obligation and, because it has not, it has also retaliated harshly by abrogating billions in agriculture contracts with Canada.

Clearly, this has become a battle within a wider war. Huawei is an instrument of the Chinese government and hostages were taken in anticipation of a prisoner swap for Zhengfei’s daughter.

Caught in the crossfire, the world’s Democratic nations are collaborating in order to provide an alternative to Huawei and Beijing.  Ironically, the 5G delays triggered by China’s own COVID19 virus have provided western competitors the window of opportunity to catch up.  Discussions are underway, initiated by an anti-China push-back from the so-called Quad nations which includes the United States, Japan, India, and Australia. Their objective is to counteract China’s drive toward data dictatorship. There is also ongoing collaboration among the Five Eyes security coalition, which includes the United States, the UK, Australia, Canada, and New Zealand - as well as the European Union. Ideally, this coalition of technologically advanced, democratic nations and businesses will create an alternative open, transparent 5G system for the world that will shut out China’s closed model.

Without an alternative, most countries will be bullied, co-opted, or stranded. Rajeev Chandrasekar, a tech entrepreneur and Member of Parliament in India, was involved with Nortel before it was attacked by Huawei. “This is not just about technology, but about trade and economics. The biggest driver for economies in the future is technology. This is a challenge to all free people and open economies of the world,” he said at a recent Hudson Institute conference entitled the Geo Tech Wars.  Since the People’s Republic of China’s military escalation in India’s Galwan Valley, the Government of India has taken bold actions, recently booting out Huawei and shutting down TikTok along with 28 other Chinese apps.  He believes that only a new construct between the governments and private sectors of free nations’ will impede China’s “Grand Strategy”.

Another conference participant, Australia security advisor John Lee, emphasized the need for a global digital economic co-operation system to hold patents, control laws, police data, and equipment imports and exports - and to impose rules and regulations that would ensure secure cross-border data and information transmissions.

He added that China has not “won” the Tech War yet. “There is time,” he said. “China is still a net importer of technology and know-how. They can be [preempted if] denied access to capital, markets, and technology. But the issue of technology leakage from Europe needs to be addressed and the U.S. is on that path now.  The Quad nations and the Five Eyes are natural coalitions to advance this. The Five Eyes is now starting to discuss geo-technology and geo-economic issues with the Quad nations, the G10, the G7, South Korea, and the European Union.”

Given this trend, we offer the following forecasts for your consideration.

First, the Technological Iron Curtain will continue to strengthen regardless of U.S. political gyrations. 

A broad bipartisan consensus recognizes that cyberspace is the most critical theater of any potential 21st-century conflict.  The COVID19 lockdowns have given the Quad Countries and the Five Eyes the time needed to select non-Chinese networking alternatives.  The key is continuing to enforce the restrictions on Chinese access to U.S. chip technology, which are currently in place.   With bans on sales of its network systems to all key western countries and no ability to purchase the most advanced chips, Huawei is effectively “dead.”

Second, the exodus of foreign companies from China will continue, but the rate is unclear. 

In the three decades leading up to 2017, U.S. administrations were encouraged to “look the other way” by American businesses who believed that they would eventually get a “serious shot” at the huge Chinese consumer market while producing their products for export at very low cost.  Today, most of those companies see that most "mass markets" are still reserved for State-Owned Enterprises and Chinese manufacturing costs are no longer “cheap” when compared to other Asian countries not known for stealing intellectual property. So, even if tariffs are reduced, countries like Bangladesh, Vietnam, and the Philippines will still look more attractive.  And,

Third, the Chinese Communist Party has burnt its diplomatic bridges with the western world and those won’t easily be repaired.  

Suppression of dissent in Hong Kong, genocide among the Uighurs, reckless mishandling of the COVID19 pandemic, and worldwide espionage prosecutions are turning China into a "pariah state."  At this point, it’s unclear exactly how the United States and its allies will handle the relationship.  But relations are not likely to get appreciably better.   The best hope for the CCP is that the U.S. administration will focus on internal matters, near-term.

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