This is turning out to be a terrible week for the U.S. in its campaign against Chinese tech giant Huawei. The U.K. now looks certain to allow the company a limited role in its 5G network, unless a late intervention by the president himself can change minds. And the expected U.S. countermove, to extend sanctions to seriously squeeze Huawei’s supply chain, has been blocked by the Pentagon on the grounds that it risks damaging U.S. innovation. This is a major surprise for the Trump administration, coming just a day after it confirmed its plans. And it is very welcome news for Huawei.
When Huawei CEO Ren Zhengfei said during an interview in Davos earlier in the week that the U.S. was certain to “escalate their campaign against us—but I think the impact on our business will not be very significant,” the words came across as stubborn defiance. There’s more of a ring of reality to them now. “We are more confident that we can survive even further attacks,” Ren said, in stark contrast to the bleak message sent out to staff just three weeks ago, at the very end of last year.
The U.K. actually decided on a limited role for Huawei last year. Despite the noise and bluster since then, nothing has changed. The reasoning is simple. Huawei has a heavy 4G install base in the country. It has a role in early 5G deployments. It is too expensive and time consuming to rip, replace and replan. It seems that commercial realities have trumped potential security liabilities. And that has put the U.S. into a tailspin.
What happens in the U.K. in the next week matters a great deal—it’s not generating all these headlines for nothing. So why is this? In short, because it is totemic. The U.S. has struggled to convince many countries to ban Huawei—the company has signed more 5G contacts since the blacklisting than its rivals Nokia and Ericsson. There is no readily provable smoking gun. The risks are debatable. And if even the U.K. goes against those security warnings, what hopes are there of convincing others? And here there is a valid concern. The U.K. has the best chance of any country anywhere to mitigate any genuine Huawei security risks. Others that may follow its lead do not.
The Trump administration never expected one of its core Five Eyes allies to side with China against its wishes. Certainly not the U.K., its most significant security partner. The press is now headlining leaks from sources to suggest this is a done deal.The fudge will be announced next week. Huawei is in. There will be limits—but this is binary for the U.S., in is in. President Trump is set to call the U.K. prime minister personally in a last desperate attempt to have him change his mind.
Western cyber experts and spooks are divided on the real nature of the Huawei threat. All acknowledge the theoretical risk of Chinese equipment securing a generational role in critical 5G networks. But some argue those risks can be contained, mitigated by limiting Huawei to radios and base stations rather than central systems and data centres, and by prohibiting deployments in sensitive locations. Others argue that 5G is too integrated, the rise of mobile edge computing and its integration to networks and the cloud makes such distinctions moot. There is little middle ground. Excluding Huawei has become a divisive, binary decision.
Huawei is banned from any 5G role in the U.S. Federal grants supporting the rural carriers still using its tech have been pulled. The government is establishing a fighting fund to promote competition. There is an extradition process underway in Canada for its CFO Meng Wanzhou. There are multiple legal cases alleging IP theft and sanctions violations. And now the U.S. is running out of moves.
On January 23, Commerce Secretary Wilbur Ross confirmed that sanctions against Huawei would be tightened. Banning it from acquiring any non-U.S. products containing even 10% U.S. IP—now that threshold is 25%. But that proposal appears to have stalled, after the DOD and other agencies have taken seriously complaints from U.S. industry as to the unintended consequences of such a move. According to the New York Times, “some officials have objected to the change, arguing it would encourage foreign companies to stop using American components, ultimately weakening American firms and the country’s technological competitiveness.”
The extension of sanctions would cut into core elements of Huawei’s supply chain. This would take a short-term toll on its manufacturing capabilities, but also push it to further “un-Americanise” its supply chain. This will mean turning to manufacturers in other parts of the world with non-U.S. technology, pumping those companies with additional R&D dollars, changing the competitive landscape. As with Huawei’s smartphone business, this takes us into the laws of unintended consequences for U.S. industry. The Pentagon’s move leaves the U.S. with something of a rethink.
Absent a major shock at this stage, Huawei is set to win its victory in the U.K. in a matter of days. The U.S. will then have to decide whether to make good on its threats to curtail some security collaboration with the U.K. We will then look to see if countries like Canada and Germany follow its lead.
All this and it’s still only January.