People walk past a Huawei logo in Beijing. The Chinese tech giant has been hit with new US criminal charges alleging it engaged in a 'decades-long' effort to steal trade secrets from American companies. Photo: Fred Dufour / AFP

Humiliated by the United Kingdom’s refusal to exclude Huawei from its 5G broadband network, the Trump Administration has doubled down on its attempts to stop China, with poor prospects for success.

The American response includes prosecution of Huawei under the Racketeer-Influenced and Corrupt Organization (RICO) statute, drafted to combat organized crime. It also includes proposed regulations that would stop the sale of any US components to Huawei and China’s second-rank telecommunications firm ZTE if 10% of their production comes from American technology.

Also proposed is a ban on sales of jet engines for civilian passenger aircraft that General Electric and France’s Safran have been selling to China since 2014 – an economic warfare measure that has no national security justification.

Never in the course of American events have so many said too much to so little effect.

US National Security Adviser Robert O’Brien, meanwhile, told the Wall Street Journal on February 12 that the US had uncovered a secret backdoor in Huawei equipment that enabled the Chinese firm to spy on Western communications. Huawei rejected the charge, demanding that the United States make the data public.

The US charge elicited ridicule overseas. Orange CEO Stephane Richard said on February 14: “I’d be interested to see the evidence. It reminds me of the weapons of mass destruction during the Iraq war.” Germany’s Der Spiegel headlined its report: “A backdoor that only the US can see.”

At the weekend’s annual security conference in Munich, American officials including Defense Secretary Mike Esper and House Speaker Nancy Pelosi warned European countries to shun Huawei. “Reliance on Chinese 5G vendors, for example, could render our partners’ critical systems vulnerable to disruption, manipulation and espionage,” Esper said. “It could also jeopardize our communication and intelligence sharing capabilities, and by extension, our alliances.”

But the US news outlet Politico titled its report, “Europe turns deaf ear to US warnings on Chinese 5G.”

Major potential blowback

The blowback against American prestige and the risk to key American companies is enormous. If the United States makes good on the rumored threat to suspend jet engine shipments to China, effectively suspending China’s program to develop a home-built civilian passenger jet designed around the GE/Safran engine, the US-China trade war will take on an entirely different character. France’s Safran is a national security asset and the sandbagging of the French firm will push Paris towards Beijing. The prospective damage to leading US firms, including Boeing – which sells a quarter of its planes to China – as well as the top US chip designers may be devastating.

None of these measures has a precedent since the end of the Cold War. Their adoption stems from a fit of frustration in Washington after nearly all of America’s allies – except Israel, Japan, and Australia – ignored strident American demands to exclude Huawei from the rollout of 5G mobile broadband.

Secretary of State Mike Pompeo publicly remonstrated with British Prime Minister Boris Johnson over his decision to permit Huawei to build part of Britain’s 5G networks, and President Trump personally intervened with the British Prime Minister to no avail. The Financial Times reported on February 6 that President Trump was “apoplectic” in a call to Johnson. On February 14 Johnson postponed a planned White House visit in response.

Germany’s government, meanwhile, overruled objections to Huawei’s involvement in its 5G rollout by a group of ruling party Bundestag members.

It is not clear what the RICO statute can do to impede Huawei’s operations, apart from subjecting individual employees of the Chinese company to extreme legal penalties. Export controls on US components to Huawei imposed in May 2019 failed to slow Huawei’s deliveries of 5G equipment and smartphones, as the Chinese giant turned to Japanese, Taiwanese and other suppliers instead. Huawei now manufactures both 5G ground stations and smartphones with no US components.

In late January the US Department of Defense vetoed a proposal from the Commerce Department to impose a 10% US content rule on component sales to Huawei and ZTE, in order to prevent foreign companies using American technology from selling to the Chinese firms.

White House economic adviser Larry Kudlow told the Wall Street Journal on February 4 that he supported the Pentagon’s objections, because “we don’t want to put our great companies out of business.”

But on February 12, the American media reported that the Pentagon had changed its mind, and now supported the more stringent ban on component exports to Huawei — evidently in response to the shift in mood at the White House.

Companies ‘will take their toys elsewhere’

Some US companies won’t go out of business, but they will go out of the United States. On February 16 the New York Times reported that the “RISC-V Foundation, a nonprofit that has created an open-source software standard for the chips that power smartphones and other electronics, acknowledged in recent months that it had chosen to move its incorporation from Delaware to Switzerland because of concerns from its members about more stringent regulations in the United States.”

The Times added: “If this administration proceeds with the current trajectory, we’ll see more defections of companies, of scientists,” said Scott Jones, a nonresident fellow with the Stimson Center. “They’ll take their toys and they’ll go elsewhere, and other economies will be the beneficiary of that.”

Qualcomm, Nvidia and other US semiconductor companies earn most of their revenues in Asia. If they are not permitted to sell to China, they will lose a large part of their business. Even worse: Huawei now produces smartphone chipsets like the Kirin series that compete head-on with Qualcomm’s offerings, and the Ascend processor for servers that compete with Nvidia.

According to a Chinese analyst, Huawei might drop the price of its chipsets by 30% in a price war with the Americans, driving them out of the whole of the Asian market. In that case, the analyst said, Nvidia would run out of cash in 18 months and Qualcomm would run out in 24 months, forcing them to shut down research and development. That would mark the end of American importance in the semiconductor industry that the US created.

Reportedly, the mooted ban on jet engine sales to China will be discussed at a February 28 cabinet meeting in Washington. General Electric and other US companies are lobbying furiously against the proposal, which has no clear national security purpose. Some US officials have suggested that China might reverse engineer the French-American engines, but GE observes that China has been buying such engines since 2014, and doesn’t need any new ones to tinker with.

The proposal will be read as an attempt to prevent China from developing a conventional technology. The likely result will be a shift in Chinese aircraft orders to Europe’s Airbus away from Boeing, already facing financial difficulties after the collapse of its 737 Max program.

Catastrophic intel failure

The Trump Administration has given conflicting signals about its intent towards Huawei, as in the flip-flop at the Pentagon over the proposed restrictions on sales of components with US content. The White House believed that it could cajole the British government into excluding Huawei, and failed to grasp what had happened even after London made its decision. This implies an intelligence failure of catastrophic proportions on the part of the United States.

Huawei has done more than sell high-quality, inexpensive telecommunications equipment to Britain’s mobile phone providers. It has made itself part of the fabric of British telecommunications engineering starting in 2011, when it hired the Chief Information Security Officer of the British government, John Suffolk, as the head of its UK business. A senior Huawei executive told me that the company’s relationship with the UK is the best of any Western country. GCHQ, the British counterpart of the National Security Agency, spent years critiquing Huawei’s code, often demanding improvements that the Chinese firm promptly made.

In 2012, Huawei announced to the applause of then Prime Minister David Cameron that it would invest £1.3 billion in the United Kingdom. A Huawei report notes that in 2018 it “invested £112 million in research and development, employing more than 300 researchers in the UK. Huawei also collaborated with 35 universities and research institutes, according to the report.”

Huawei employs 50,000 foreigners, most of them researchers, in two dozen research centers around the world, and subsidizes thousands of others. It is the first Chinese company that has engaged the engineering and scientific elite of the West and with their help, seized a commanding technological lead.

There never was any doubt that the United Kingdom would continue its collaboration with Huawei, illustrating Gen. Sun Tzu’s adage, “Every battle is won or lost before it is fought.” Huawei built its relationship with Britain in the open and became part of the British engineering establishment with strategic investments and calculated deference to Britain’s security services.

The United States didn’t see it coming for the same reason that no American agency considered the possibility that Pearl Harbor might be a Japanese target in December 1941, or the British military didn’t consider the possibility of a Japanese land attack on Singapore in 1942. It simply didn’t occur to America’s intelligence services that the Chinese were capable of cornering the world market in a game-changing technology. It also didn’t occur to Washington that China had developed sufficient capacities in semiconductors to produce its own high-end chips and ignore an American export ban.

Donald Trump evidently is getting his briefings from the same intelligence services that ignored the challenge from China until it was too late to stop it – and wants nothing more than to shift the blame away from its own failures. The result is a cringeworthy embarrassment for the United States and the danger of serious economic disruption.

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25 Comments

  1. Mr Goodman, I think you have a good command of Chinese language, so here is what I am thinking after reading your article:
    邪不压正。
    Also, it is futile trying to resist the law of the nature. With more than 3 times the US population, it is only natural that China surpasses the US sooner or later if citizens of both countries perform to their best productive potential.
    The result speaks for itself.

    1. This has nothing to do with whether Huawei is allow to do business where it wants to; Its about the tunicles of the Chinese communist party, and if we allow Huawei to operator around the world down this avenue, were allowing them a platform to try to shift the world order, and brainwash the millions like the communist party of china has done to there people. This is the fundamental reason why the west can not allow Huawei to exsist.

  2. The message of my book “China rising, will the west be able to cope” (Singapore, 2009) is: the west shouldn’t worry so much about China. Instead, the west should accept China’s rise and make sure it has its own house in order in terms of productivity and competitiveness through education and innovation.
    That message is still very true today.
    Unfortunately, the US is increasingly trying to stop competition from China. The US will never manage though and the only result will be a weakened US. It is worrying that America’s desperate, destructive effort is not just another uncontrolled “Mad White House” action, but has the full support of leading Democrats.

  3. EXCELLENT WELL WRITTEN COLUMN. ONE EXCEPTION AND THAT IS THE NARRATIVE OF PEARL HARBOR .NOT AS AS STATED. ADM KIMMEL AND GEN SHORT WERE BLAMED FOR NOT ANTICIPATING A STRIKE THAT THE US INTEL KNEW WAS GOING TO TAKE PLACE AND MISLEAD KIMMEL AND SHORT WHO DID NOT RECEIVE THE NEEDED INTEL.THE HIGHEST OF US LEADERS WORKED WI THE BRITISH TO GET THE U INTO WW2 .IN FACT IN REALITY THE US WAS IN THE WAR ALREADY BY 1940 ILLEGALLY SUPPLYING THE BRITISH WITH NAVAL SHIPS; WEAPONRY AND MUNITIONS .AND FOOD ON THE HUMANITARIAN SIDE. AND THE US NAVAL WAS ENGAGED IN PROTECTING THE MERCHANT MARINE CARGO SHIPS.AND THERE WAS ACTUAL COMBAT B THE U S NAVY.

  4. Misses the point. The Americans are in freakout because of the perceived Huawei threat to their global surveillance, not its alleged technology leadership. Huawei isn’t that far ahead in 5G and it still needs US technology to make its network equipment and its phones. The writer is completely wrong to say Huawei might drop its chip prices 30%. Huawei doesn’t sell its chips to third parties.

  5. The writer has a clear bias towards China. Chinese model of business in which companies wanting access to Chinese markets have to share technology with local companies has often been used to steal critical technologies. It is well known fact Chinese 5th gen warplanes wouldn’t have been possible had the Chinese not stolen technologies from US defense contractors. America’s fear of their tech being stolen is not from a paranoia but from repeated theft carried out by Chinese companies. Also since it is a war of two tech Giants vying for superamacy, how is it wrong if US decides to go on offensive. People have forgotten how US forced Japan to capitulate in the 80s when America felt threatened. UK is still dependent on US for it’s survival. America is still not that serious as it was against Japan but if it does then we will get to really see how much can Europe resist.

    1. If it’s in the contract: “foreign investor has to share some tech with chinese partner” then how is it “stealing”? The problem is capitalists are often short sighted and unprincipled, they accepted such deal in order to make (ab)use of the cheap labour costs and take advantage of other tax benefits, benefits that any other willing government could have provided, China just happened to be the best deal back then, as it is now, so don’t expect things get better by blame-gaming.

    2. No nation will risk copying another nation’s hi tech war machine. First, it is nearly impossible to copy hi tech equipment from stolen blueprints. Second, it takes more time to make a copy work than it is to start from scratch. Third, one small error will cause a crash. All this talk of copying and stealing is ALL hype !!!!! China sends PhD students to the US and that where lots of technology information comes from.

    3. You re done with your military/ thec supremacy. The history says every empire must to be toppled. How much evil,pain, suffering USA has inflicted to small countries which couldn’t stand to USA threatening of any kind. Relax, accept that your time arrived to be judged by Karma. Nothing escape from it.

  6. AI – Fukuyama’s End Of History is analysed, derived and thought wrong – but nevertheless it will be fact and in fact it will be a Markov Process. We can think that (Pattern Theoretical) as a Political Action Grammar Induction.
    China will bring AI to perfection and this will create nothing else than a Markov Chain of AI-Created-Events in which each event depends on nothing more than the precedent event – so it will be a Triplet Hidden Markov Model (HMM), where the Triplet-Model-Structure depends on certain geopolitical structures.
    So the historic result is calculable – it is the GLOBAL-CHINA-SYSTEM.

  7. Look at VW (Volkswagen). They increase their result in China (Asia) more and more see https://www.best-selling-cars.com/brands/2019-full-year-globale-volkswagen-sales-worldwide/.

    So think of the further developement of those industries? What will be the further developement? Yes, you are right, they will develop and mutate ‘intrinsically’ to the chinese system. And what will happen in their ‘homelands’ systems? Yes you are right, they will begin to mutate the industry-structure, the social-, the cultural- and the law-structure (if you follow the classical sociology of industry hypothesises).

    Axel Arnold Bangert – Herzogenrath February 2020

  8. For many years, Western countries have been taking advantage of the low cost labor from China. After making tons of money off cheap labor, the West decided that China was getting too rich and powerful. Default actions of the West are aggression and war. Most Asian people subconsciously understand this even if they are uneducated. President Xi should have seen this coming.

  9. The British are very intelligent people. That is why a small country like Britain can have an Empire for hundreds of years. Britain, unlike Australia, refused to ban Huawei when told rapidly by the U.S. Why should they follow blindly without a sound reason. Instead they are the first one to join AIIB and nominate Danny Alexander as Senior Vice President. Also allow China to put in tender for S2 railway expansion. The future is bright for Britain against the decline and upset China by following the America move in ignoring China in its 5G development.

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