Will Donald Trump score an important victory against China by locking out Huawei from western networks? The Economist tried mightily to avoid giving personal credit to Trump in its analysis of decisions by the UK and Canada to exclude the regime-linked firm from its 5G projects. Instead, they cast it instead as “America’s war on Huawei” while noting that the final battle will take place in Berlin.
The Economist’s unsigned analysis of the Huawei fight is sound enough, but for some reason they barely mention Trump at all, even though he clearly is the one who has pushed it. He gets mentioned only twice — once to note that he “immediately took credit” for the UK decision, and another time to quote him describing 5G as “a race America must win.” Given Trump’s active efforts to pressure Europe and other allies to lock Huawei out, as well as the complications Trump himself brings to that effort, it seems like a strange lacuna in this analysis.
Perhaps it’s because Trump has proven effective in this battle:
On July 14th the government said it will ban mobile-network operators in Britain from buying Huawei equipment for their 5g networks, and told them to remove equipment already installed by 2027. Well before that—by the time of the next election, in 2024—the country would be on an “irreversible path” to expunging the Chinese firm from its networks, said Oliver Dowden, the culture secretary.
Mr Trump immediately took credit for having “convinced many countries” not to use Huawei. While some have been on board for a while—Australia banned Huawei 5g equipment in 2018—others have moved more recently. In June telecoms companies in Canada and Singapore announced plans for 5g networks built around equipment provided by Huawei’s main rivals, Ericsson, a Swedish firm, and Nokia, a Finnish one (see chart 1). In both cases Huawei had previously been a possible provider. On July 6th the head of the French cyber-security agency advised network operators which do not currently use Huawei not to plump for it in future.
Now all eyes are on Germany, which has said it will decide on the matter in the autumn. If it follows America’s urging and Britain’s example then the rest of the eu will probably go the same way, and a significant corner will have been turned. Western communications systems will be a bit less insecure. America will have used its sovereign might to humble one of China’s national champions, and China will doubtless be responding. The technophilic imperative that has made 5g a totem of the fully networked future will have had its momentum checked, at least a little, by a mixture of countries not wanting to upset America and being willing to upset a China they find increasingly disturbing.
Perhaps most profoundly, such a change may leave behind it a world where governments are less willing to depend on companies from countries with divergent interests to supply capacities they deem strategic. “At the heart of this is a dilemma which the West has not faced before: how to cope with a technology superpower whose values are fundamentally opposed to our own,” in the words of Robert Hannigan, a former boss of gchq, the British signals-intelligence agency.
That would indeed be quite a victory for the US … as well as Trump. It follows the same essential argument that William Barr used in his speech yesterday, going after American corporations who engage economically with China. This regime is antithetical to free market commerce and liberty, Barr reminded them, and they are using that engagement in malicious ways. To paraphrase from War Games, the best way to win that game is not to play.
Will Angela Merkel reach that same conclusion? She faces the same pressures on intel sharing that Boris Johnson did, and those are realistic problems. The US simply cannot have China penetrating comms systems over which they share intel, and no one else should want that either. She’s playing it cagey at the moment, Axios reports, promoting engagement rather than conflict, but Germany may not be able to afford to cut itself off from the UK and France on intelligence and defense, let alone the US.
The trend looks bad for China, and it’s not the only trend going south. Beijing claims that its economy has rebounded from the COVID-19 pandemic’s devastation, but investors aren’t buying it — literally:
The world’s second-largest economy expanded 3.2 percent from April through June compared to the same period last year, Chinese officials said on Thursday. It was an abrupt turnaround from the January through March quarter, when the economy shrank 6.8 percent, the first contraction that China has acknowledged in nearly half a century.
The recovery points to the authoritarian government’s success in bringing the coronavirus outbreak under control with widespread testing and travel restrictions, after its early missteps delayed the response and fed public anger.
But the economic rebound also reflects the government’s continued reliance on spending on the building of highways and rail lines and other infrastructure projects to juice the economy, rather than on domestic consumption.
That approach raises questions about whether China’s economic turnaround can be sustained, and whether it can become the engine needed to drive the global economy out of a slump.
The Shanghai and Shenzhen stock markets in China fell 4.8 percent on Thursday as investors concluded that economic growth had become too dependent on government stimulus.
“It’s all investment,” said Hong Hao, the chief strategist at Bank of Communications International. “Consumption, which is the most sustainable part of growth, is doing much less, so therefore the market sees it as a weakness in economic health.”
China has built ghost cities in the past to juice its economic-output metrics, and it’s not above building more to keep up the appearance of competence. The problem is that it spends money on non-productive efforts without solving the underlying problems. We have a robust debate over government intervention here too, but so far the relief packages that have passed have skipped over the non-sequiturish infrastructure projects and have aimed spending at payroll support. That has resulted in a fresh burst of consumption, the kind of stimulus needed in an acute economic crisis. China’s actions suggest that their leaders either don’t recognize that issue or simply have no means with which to address it.
That’s what makes the pressure on Huawei so important right now. China desperately needs revenue to boost consumption as well as tentacles into Western communications. It’s about to suffer a big loss on both fronts as well as an international humiliation that won’t sell well at home at all. That could tip China even further into the recession it is clearly suffering at the moment. At some point, Xi Jinping may need to finally call a truce in the trade war, if one is even possible any longer.
