Amy Karam is the author of The China Factor: Leveraging Emerging Business Strategies to Compete, Grow and Win in the New Global Economy, chief global competitive strategist at Karam Consulting, a teacher at Duke University, and the executive-in-residence on China, trade and innovation at Carleton University’s Sprott School of Business.
There is no grey area when it comes to the Trump administration’s approach toward China and its major multinational tech company Huawei: Washington has declared economic war. In late May, the United States escalated its ban on Huawei by blacklisting the firm, handing it an export ban and placing it on the Bureau of Industry and Security’s “entity list". This continuing trade tiff comes months after Meng Wanzhou, the company’s chief financial officer and its founder’s daughter, was arrested in Canada under a U.S. extradition treaty last year.
But other Western countries, including Canada, are still deliberating their position on whether to ban Huawei or not. The consequences of a decision to support the United States or China are manifold and become even more complicated when geopolitical trade-offs come into the picture. If Canada allows Huawei to be part of its 5G infrastructure, there will be serious repercussions from its largest trading partner, the United States; if they ban Huawei, the retaliatory consequences could be dire, as Ottawa continues to work to secure the freedom of two Canadians detained by China.
But the 5G question goes beyond the valid national-security concerns and the thorough work required to figure out security policy and procedures for not only Huawei networks but all vendor equipment. While its political direction is clear, the United States would actually benefit from a different approach to Huawei – by becoming “frenemies” and addressing the global competitiveness challenge.
After all, the reality is that the United States is not a significant player in the 5G infrastructure market, placing them at a long-term competitive disadvantage in telecom – and this pause in development is producing an absence from the 5G sphere that only contributes to the national security threat. Years ago, U.S. networking technology market passed on the 5G mobile infrastructure opportunity. Free markets determine what they want to invest in, but for some reason, wireless 5G infrastructure didn’t make the priority list. Whatever the reason, the net result is a superpower without a champion in one of the world’s most important future industries.
Another reality is that there is a low probability that Huawei can be “shut down” worldwide. Despite Huawei chief executive Ren Zhengfei’s recent statement that U.S. sanctions will cost Huawei US$30-billion in expected revenue, the company is simply too big and has customers in too many countries. It is the world’s number-two smartphone vendor, it’s extremely tenacious and, most crucially, the Chinese government is not likely to let it die.
In Huawei’s recently updated Q1 numbers, it reported having 46 contracts with 30 countries, many of which are likely emerging countries. This is no surprise: It makes sense for emerging countries, especially those involved with China’s Belt and Road Initiative, to select Huawei as part of a bigger deal. Emerging-market customers also appreciate the significant financing that is offered and Huawei’s pricing is often lower than Western options, although this may be changing as Huawei becomes a leader in 5G solutions. Further, emerging markets are a significant future revenue source for communications infrastructure build-outs and Huawei has a solid head start in that market.
Washington, with the assistance of Canada, needs to develop an offensive play to bolster its current defensive strategy in the 5G infrastructure space, capitalize on the 5G industry, take the lead on setting standards and create an end-to-end 5G cybersecurity solution. Espionage by way of hacking can happen through any network, not just through Huawei’s equipment – and so the security challenge is broader than one Chinese tech firm.
The United States would be well-served to consider “co-opetition” – a co-operative kind of competition – by figuring out how all countries can compete in the same 5G sandbox. Otherwise, the United States (and Canada, too) will remain on the outside looking in. Protectionism has a short shelf life in effectiveness and, by pushing Huawei away, Washington will only nudge the company closer to becoming more self-sufficient by sourcing other allies.
We need to extend the conversation beyond the current Huawei ban to a longer-term view of how the United States and Canada can become competitive in 5G. Championing companies that can enter the industry and influence the direction and protection of global 5G networks would go a long way toward an economic detente. The United States must become innovative at innovation again – but more importantly, the country must understand the deep disadvantages of its zero-sum approach.
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