No Huawei out: Prez Trump’s game of chicken with China has serious consequences


Originally published by The Register (UK)
Author: Thomas Claburn

Analysis Chinese telecom giant Huawei – the most prominent target of the Trump administration’s decision to declare a national emergency to protect American IT infrastructure by banning technology provided by foreign adversaries – on Monday received a reprieve that allows it to do business with US suppliers.

But its days are numbered – Huawei has a license to do business with US suppliers until August 19. If that day arrives and the US and China have been unable to reach an agreement to resolve their trade differences, then not only will Huawei equipment be forbidden on US networks but the company and 68 of its foreign competitors will be denied the ability to buy from US suppliers.

The Trump administration, backed by US cyber defense experts, believes that Huawei equipment can’t be trusted, because of the company’s ties to the Chinese government. With telecom companies building 5G networks around the globe, administration officials believe they have to act now.

“There are a lot of companies that do business with Huawei,” said Scott Kennedy, director of the Project on Chinese Business & Political Economy for the Center Strategic & International Studies, in a phone interview with The Register. “There could be lots of collateral damage.”

One possible consequence, Steven Weber, professor of political science and international relations at UC Berkeley, told The Register, is a world where boundaries are shaped more by technology standards than geographic features.

That is to say, we may be headed toward nationalized technology stacks that don’t interoperate and nationalized supply chains. This defeats the entire purpose of an open internet.

“We all take it for granted that our phones work everywhere,” said Weber. “But there’s no law that says 5G networks have to operate on a global standard.”

Damage
The collateral damage is already accumulating. Arm, Broadcom, Intel, Qualcomm, and Xilinx have reportedly directed employees to stop supplying Huawei, and news of the policy change has weighed down the stock prices of affected semiconductor firms.

A chip industry source reminded us that, for one thing, Japanese CPU designer Arm has a facility in Austin, Texas, USA, that validates Arm-compatible and licensed chip designs for customers around the world, including those in China, and thus is restricted by the White House’s latest crackdown.

Qorvo, a radio frequency chip maker, on Tuesday revised its guidance to investors by noting that it will stop shipments to Huawei.

EE and Vodafone have withdrawn Huawei phones from the launch of their 5G networks in the UK, the latter company having acknowledged last month that routers provided by Huawei a decade ago had backdoors. Japanese mobile companies NTT Docomo, KDDI and SoftBank have delayed the launch of a Huawei phone that was expected to debut later this month.

Google has suspended Huawei’s license to use its Android mobile operating system. The decision prevents the Chinese company from adding Google services like Gmail, Google Maps, Play Store and other Google apps to new devices, though existing ones will continue to function. It also complicates security updates and all but guarantees Huawei will forge ahead with its rumored fork of the Android Open Source Project.

Microsoft has pulled the Huawei MateBook X Pro from its online store; Huawei devices are no longer available at BestBuy.com. At Amazon.com, however, Huawei laptops, tablets and phones can still be had.

And ripples of the Trump administration’s trade tussle with China extend beyond Huawei. Reports indicate that US authorities may blacklist five Chinese video surveillance technology firms alongside Huawei: Hangzhou Hikvision Digital Technology Co., Megvii, Meiya Pico, Iflytek and Zhejiang Dahua Technology Co.

Monitoring
It’s been suggested that the Trump administration is concerned about the role these companies play in helping China monitor and control its Uighur minority, though the administration’s response to the death of journalist Jamal Khashoggi at the hands of Saudi operatives suggests trade interests matter more than human rights.

Industry trade groups are worried, to the extent that Computing Technology Industry Association (CompTIA) and the Telecom Industry Association (TIA) both declined on-the-record interview requests. But background discussions reveal both concern and ambivalence, because while some technology companies stand to lose from the denial of Chinese business, others stand to gain.

What’s more, many US technology firms have been frustrated with with the way business is done in China. Without saying so publicly, they’re glad there’s finally some effort to deal with longstanding issues like government favoritism toward local companies, intellectual property theft, and forced technology transfers.

While there’s doubt the administration will reverse its position on Huawei gear in US networks, there’s hope that the Commerce Department’s Entity List export restrictions could be lifted, which at least will allow US firms to sell to Huawei.

Economic impacts
On Wednesday, the Semiconductor Industry Association cautioned that the media had overstated the scope of Huawei’s temporary license.

“The license is narrowly focused and does not allay our concerns about economic impacts on the semiconductor industry,” the group said in a statement.

“The license only allows continued exports of parts for servicing related to existing (as of May 16, 2019) networks and handsets, not exports for new products. No new sales to Huawei for new equipment are permitted. As a result, the license offers only very limited relief to suppliers of Huawei, including U.S. semiconductor companies, as the majority of their business with Huawei involves sales for new devices.”

Kennedy, with CSIS, isn’t convinced the potential economic consequences of this trade war will affect decision making.

“The folks pushing this in the US government don’t care about the consequences for Huawei or those it does business with because they think Huawei is such a national security risk that the damage done to businesses is worth it,” he said.

Kennedy said there are a wide range of possible outcomes. “At the extreme, the US could continue to pull up the drawbridge and sever its economic ties with China along high-tech lines. We would see the world split into Chinese and non-Chinese tech hemispheres.”

The best outcome, he said, is a truce involving a broad trade deal that lays clear rules for two countries moving forward and promotes ongoing dialogue.

“This is in some ways a game of chicken between two hardline governments that are very nationalistic and see that it’s in their domestic political interests to take a firm stance,” he said.

Pointing to the US agreements with the Soviet Union about nuclear weapons, Kennedy said, “We need the same type of rules of the road for cybersecurity and we don’t have that right now

Weber, with UC Berkeley, said while it’s difficult to believe the global supply chain that developed over the past thirty years might break, the Trump administration appears to be committed to undoing it.

“It’s a determined effort to pull as much of that supply chain back inside the US border as they possibly can,” he said. “They won’t succeed 100 per cent but we might surprise ourselves.”

There are risks to both American and China in this standoff. While Weber believes the US has the upper hand in the short term, he contends China, if it can navigate the internal political risks of disruption, has the long term advantage because of its size and resources. China, he said, could shut Apple out of the Chinese market and that would hit the US stock market hard.

Already, there are reports that some Chinese, motivated by national interest, are dumping iPhones for Huawei devices.

During a press conference for Chinese media on Tuesday, Huawei CEO and founder Ren Zhengfei tried to avoid assigning blame for the current state of affairs and argued for accommodation. “The media should understand that these US companies and Huawei share the same fate,” he said in a transcript provided to The Register by the company. “We are both players in the market economy.”

Challenges
Weber said a year and a half ago, in conjunction with the UC Berkeley Center for Long-Term Cybersecurity, he was involved in scenarios that attempted to imagine the challenges of 2025.

“One of our scenarios was called Barlow’s Revenge which was a story about nationalized supply chains,” he said. “A year and a half ago, in theory that could happen, but the world was too interconnected to imagine that. Now people are saying we’re actually already living in that world.”

That’s not a scenario likely to appeal to Silicon Valley’s free trade contingent. As described on one of the presentation slides, a lot will be lost: “The delicate balance of regulation and innovation in which the digital world thrived for the last 40 years is hollowed out.”

Weber expressed optimism that a short term fix will be worked out – that’s happened before when ZTE was briefly banned. “My gut tells me that will happen sometime this summer before the 2020 election heats up in the US,” he said. “But I don’t think the fight will suddenly go away. It will be toned down but I think five years from now we will see significantly greater nationalized supply chains.”

Back in 2006, Google, Microsoft and Yahoo urged the Bush administration to treat censorship as a trade barrier and to pressure info-banning countries to open up. The Computer and Communications Industry Association, a tech trade group, repeated that call to the Obama administration in 2009 and Google did so again in 2010.

The answer from previous administrations, said Weber, was to avoid getting dragged in to what the government considered a business model problem and not a foreign policy problem.

Now that the US government has intervened, there are more questions than answers.

“Be careful what you wish for,” said Weber.

Read the original article at register.co.uk