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Huawei and “The American Trap”

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Huawei, espionage, 5G, no matter the form it takes, it’s all over the news. But how did we arrive at the current situation? Let’s take a look at the past, present, and future of Huawei and its implications for the US and global economy.

Huawei: What Is It?

If you own some sort of electronic device, chances are, you’ve come across the name Huawei. With headquarters in the “Chinese Silicon Valley” Shenzhen, they provide hardware and consulting services and sell electronics to much of China. As a leading technology company, Huawei has expanded to all corners of the world; located in over 170 countries, they boast a revenue of $108.5 billion per year. While these stats are certainly impressive, Huawei remains one of the most controversial companies due to the set of regulations they abide—and possibly don’t abide—by.

Controversy

Huawei’s controversy stems from research they’ve pioneered in the field of 5G network technology. Unsurprisingly, the US has led the case against Huawei. The US accused them of giving the Chinese government vital technology that enables them to spy on the US government. In the interest of protecting “national security,” many prominent political figures have spoken out, such as Senator Marco Rubio and, less directly, FBI director Christopher Wray.

The US has, in response, taken several steps to limit Huawei’s capabilities. In August of 2018, they passed the National Defense Authorization Act for Fiscal Year 2019 (NDAA 2019). That act forbade any business interactions between the US government and Huawei.

Subsequently, Huawei filed a lawsuit, protesting a violation of their rights to due process. Not long afterward, in December of the same year, the Canadian government arrested CFO Meng Wanzhou, who’s also the daughter of the CEO, at the US government’s behest. This time, Huawei was accused of violating sanctions against Iran. A sanction, in the economic sense, is a tool a country uses to restrict or prohibit economic activity with another country. While Meng was soon released on bail, the US later indicted Huawei with 13 counts of wire fraud, which is what they suspected the company used in the supposed sale of US technology in Iran. Fast-forward to May of 2019, when the US Department of Commerce further restricted Huawei’s business opportunities in the US with the International Emergency Economic Powers Act and the Export Administration Regulations.

Huawei’s Response

Apart from claiming a violation of due process, Huawei has demanded proper evidence to be presented along with the charges.

CEO Ren Zhengfei has suggested that anti-competitive sentiments are motivating the US, for Chinese advancement of 5G equipment remains unrivaled.

As expected, Ren has also denied all charges of espionage, claiming that the Chinese government has neither requested improper information nor received any. Multiple Huawei executives have expressed similar thoughts, a recent example being Catherine Chen, the director of the board. Chen chooses to view the situation in regards to the ban’s effects on the average American. She believes the US government is unintentionally harming consumers and entities alike by eliminating revenue, jobs, and opportunities for growth, particularly for small businesses. Furthermore, the act may hamper existing systems by forcing a conversion from Huawei gear to less-affordable equipment from alternatives like Ericsson and Nokia. Addressing the potential of 5G, Chen warns that banning Huawei won’t actually limit their development; rather, it prevents 5G from making progress in the US.

Concerning the central issue of espionage, blacklisting only Huawei does nothing to stop security risks from other non-Chinese companies that have large establishments in China. Finally, Chen urges the White House to test America’s communications network and invite Huawei to the discussion table instead of blocking them out.

Other Responses

In the immediate aftermath, several countries followed the US’s lead by banning Huawei from conducting business within the country. By 2018’s end, 4 of the 5 members of the Five Eyes alliance (Australia, Canada, New Zealand, and the US) passed restrictions on Huawei 5G technology.

However, many of them like Japan, South Korean, and the Czech Republic reversed harsh bans after investigating.

But, throughout 2019, more and more countries have lifted restrictions and approved Huawei 5G technology within their borders. Some examples include the UK, France, Germany, Malaysia, Italy, Switzerland, and Russia.

Current Situation

Google made headline news by excluding Huawei from updates of its Android system. Similarly, Facebook has withdrawn its previously automatic installment on Huawei phones in an effort to sever relations.

However, recent predictions seem to favor Huawei. Experts are forecasting that the blacklist will fail and Huawei will emerge victorious and independent from US business regulations. Huawei’s 5G system maintains a strong lead above that of its competitors, innovating new technologies at far more affordable prices.

Belt and Road Initiative

Another controversy surrounding Huawei is its role in China’s Belt and Road Initiative. Originally called One Belt One Road, the plan aims to promote a China-centered economic network spanning all of Afro-Eurasia. Many developing countries have seen global institutions like the World Bank and the Asia Development Bank fall short for funding them. This forces them to turn to the opportunistic Chinese program for their needs. Eventually, even developed countries such as Japan, Australia, Italy, Belgium, the Netherlands, Canada, and France all joined in. At the same time, some countries (e.g. Turkey, Argentina, Sri Lanka, Fiji, Spain, and Poland) have taken a more apprehensive stance, rejecting Chinese advancements. So how does this tie into the 5G debate? The US believes Beijing might take advantage of participants of the Belt and Road Initiative by infiltrating and leaking intelligence.

Critics still view the plan as too political to have solely clean intentions. But with greater transparency, it has boundless potential for further connecting the already global economy.

The American Trap

Ever heard of The American Trap by Frederic Pierucci? Well, consider CEO Ren Zhengfei a fan. First, let’s start off with a little background information on the author and his novel. Frenchman Pierucci was once an executive for Alstom, a promising rail transportation company. After being arrested in the US on bribery charges, he spent a total of five years in prison. In fact, he was only released after his company was bought out by American rival General Electric.

In The American Trap, Pierucci cautions the reader to avoid standing on the wrong side of US law, citing his own treatment and drawn-out conflict. More specifically, he has accused the US of putting its own companies’ interests above those of foreign-based companies to the extent of wielding underhanded anti-competition tactics.

Now, remember CEO Ren? Ever since the book was found on his desk, it’s popularity has grown in China. Amusingly enough, Huawei’s headquarters have even been giving out the books as gifts to visitors. While many draw similarities between Pierucci and Meng’s situations, others point out differences. One difference, according to lawyer Chen Litong, is that while Alstom was justly accused, Huawei charge lacked proper evidence. Nevertheless, the book’s rise in popularity reflects corporate China’s current sentiments toward the US.

About the author

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A rising junior at Amador Valley High School, Cassandra Ying has a passion for economics and finance. At StreetFins, she covers stocks, bonds, and current events.

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