After removing it from government contracts for espionage, the US government is pushing hard to ensure that Huawei equipment is banned by its allies as well. This is part of Trump’s larger game plan against China.
- Chinese telecom equipment maker Huawei faces a daunting challenge to its growth plans since the US ban on its equipment for government and government contractors.
- The Trump administration firmly believes that Chinese telecom players like Huawei are engaged in espionage for the Chinese government, and is pressurising its allies to ban them as well.
- The decision is part of the Trump administration’s larger strategy to correct the trade imbalance, and the resultant political and military imbalance with China.
- In particular, the backlash against Huawei will negatively impact its participation in bidding for the next-generation 5G technology.
Reclusive Huawei Chairman Ren Zhengfei complimented US President Donald Trump in an interview with foreign media last month, calling him a great president. He categorically denied taking orders from the Chinese government and assisting it in espionage.
This was the first interview by Zhengfei, who is a former engineer for the People’s Liberation Army, to foreign media since 2015. The reasons for Zhengfei’s emergence from his shell are not to hard to decipher.
The Chinese telecom equipment behemoth is trying hard to sort out its individual issues with the Trump Administration, which are also seen as a critical part of the US-China trade dispute. This has become all the more essential as the ramifications of the dispute are being felt in some of its other markets.
The Republican government firmly believes that Chinese telecom equipment companies are national security threats. In August last year, President Donald Trump signed a bill to ban Huawei and ZTE from projects by the government and its contractors.
WITH US OR AGAINST US, REDUX
To make matters worse, US has been asking its allies to do the same. During a visit to Budapest on Monday, US Secretary of State Mike Pompeo warned US allies to desist from using Huawei equipment on their soil. The US is concerned about possible expansion by the company in EU through Central Europe. The US has also linked the decision of countries in this regard to its troop presence in future.
He stated, “If that (Huawei) equipment is co-located where we have important American systems, it makes it more difficult for us to partner alongside them.” The pressure being exerted by US on the EU is significant considering that Huawei corners around 40% of the telecom equipment market in Europe.
Huawei is already facing a blackout in several countries. Australia has blocked Huawei and ZTE equipment for its 5G network. British Telecom has decided to remove Huawei from its telecom network by 2020.
In New Zealand, the Government Communications Security Bureau (GCSB) also warned against the use of Huawei equipment due to national security risks. As a result, national telco Spark has been banned from using Huawei equipment. In response, Huawei released full page ads in the country with an emotional message – “5G without Huawei is like rugby without New Zealand”.
Czech cybersecurity agency Nukib released a formal warning about the risks of leveraging Huawei and ZTE. Huawei has threatened to sue the agency.
HOW DID THE STRAWS START PILING UP?
The heat on Huawei aand ZTE was turned on after a US House Intelligence Committee report that dates back to 2012. The report concluded that Huawei and ZTE cannot be trusted to remain free of foreign state influence.
It said that the companies were unable to furnish documentation on their relations with the Chinese government authorities back home. The report cites that the two companies could possibly have incorporated backdoors into their routers and switches and leak sensitive information to the Chinese government and private sector.
Huawei is also under scrutiny for shipping products to Iran via the US, thereby violating US trade sanctions against Iran. This was the reason for the arrest of Meng Wanzhou, CFO, Huawei and daughter of Ren Zhengfei in Canada. She is accused of helping defraud banks to avoid sanctions on Iran and faces extradition to the US.
The ban enforced by the Trump administration covers all components that are ‘essential’ or ‘critical’ to the system they are used in. Components that are not used to route or view data are still permitted. Nevertheless, it will play into procurement decisions by Huawei’s current/potential customers and greatly impact its business.
For instance, a planned US$ 26.5 billion merger between T-Mobile and Sprint Corp faced considerable opposition due to possible use of Huawei or ZTE equipment, as both companies have ties with Huawei. T-Mobile US CEO John Leger asserted in response, “Let me be clear—we do not use Huawei or ZTE network equipment in any area of our network. Period. And we will never use it in our 5G network.”
Huawei called the ban a “random addition” to the defence bill that was “ineffective, misguided, and unconstitutional.”
DKODING THE LARGER GAME
The US tirade against Huawei is part of the larger US-China trade spat, for which the Trump administration has very specific objectives. The US believes that China has been abusing the international trading system since long, and stolen IP from US, Europe and Japan.
National Security Advisor John Bolton comments in an interview with the Washington Times, that the “transfer of wealth is now being used by China to be converted into military capability which poses a threat to the region and a threat to us”. So the aim is not just to compel China to play by the rules, but to also ensure that the political/military imbalance is prevented in the future as well.
The impact on Huawei and China will be quite significant. Trump could even ban private companies now from buying Chinese telecom equipment.
Huawei had a market share of 28% in the global telecom equipment market in Q3, 2018, well ahead of Nokia, Ericsson, Cisco Systems ZTE Corp. But the crisis could affect its growth in 2019. The company’s revenue grew by 21% in 2018 and is projected to go below 20% this year.
But the greater concern for Huawei will be isolation from participation in bidding for 5G networks in a number of countries. Companies are engaged in a highly competitive race for building the brass tacks of the technology, which will be truly revolutionary for the global economy. By pushing Huawei back in this crucial race, the US is making a much larger statement with respect to its intentions for China.