Justified Protectionism Against Huawei

Justified Protectionism Against Huawei

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Ask any classical economist, and he’ll tell you free trade maximizes benefits for all parties. Producers are able to sell more goods, and consumers get a lower price. But they will also likely add that there are some cases in which that tenet doesn’t apply for a variety of reasons. I believe undoubtedly the substantial dangers of importing from the Chinese telecom company, Huawei, makes it one of those cases.

Free Trade Benefits Consumers

The total effect of trade protectionism is negative because it results in higher prices for consumers and higher prices for domestic producers who need the imported product as an input, and the gain by producers in the specific industry is canceled out and overshadowed by the loss of consumers and producers in the general economy. If steel manufacturing was completely in America, car and construction companies would pay higher prices to produce. This ultimately reduces production output.

Even in dumping cases — where a country subsidizes its production to drive foreign companies out of business — economists argue that tariffs and quotas should not be placed because the cheap products benefit consumers more than it hurts producers. Milton Friedman once said, “the more dumping, the better,” and called it a sort of foreign aid. All of this supports the accepted law that free trade is good.

The Case Against Free Trade

Objections to complete free trade come from several legitimate justifications: quality control, labor and environmental issues, national security, and innovation. An often cited yet erroneous reason for restricting trade is to protect producers. By placing restrictions on imports, policymakers can make domestic products in that industry cheaper relative to foreign products and thus boost domestic products in the market. 

Justification #1: Quality Control

Let’s examine such justifications for protectionist trade policies. Quality control refers to wanting to ensure that only products of a certain quality make it to market. This is prescient when one country has a higher regulatory standard than another. Usually, in milder cases, a country will only order inspections of imports to certify the product meets domestic standards, but occasionally all imports of a certain kind will be blocked. For example, South Korea stopped the import of fish from Japan after worries about nuclear contamination after the Fukushima Incident. However, quality control isn’t really relevant in the tech industry, but the US has other legitimate reasons to block Huawei.

Justification #2: Labor and Environmental Concerns

Labor and environmental issues refer to concerns about whether the exporting nation is following environmental regulations, maintaining a reasonable working environment, and paying a livable wage. Huawei is a Chinese mega-corporation, which means it has some skeletons in its closet. News organizations like WIRED have conducted investigations into the hazardous working environment for manufacturers, including workplaces with high levels of a chemical known to cause neurological damage. And while the engineers are paid high salaries at Huawei, the culture bred by its roots in the Chinese military has been described as wolf-like. This has caused enormous stress in its employees, resulting in an astronomically high turnover rate.

Additionally, the culture has caused employees to engage in unethical behavior to get ahead. This ranges from stealing American intellectual property, as T-Mobile alleges, to collaborating with Iran, as the CFO of Huawei was arrested for. Undoubtedly, there are fundamental problems in how Huawei treats its employees, but this consideration pales in comparison to the threat to national security.

Justification #3: National Security 

Historically, national security protectionism has centered around products which the US would need in times of war when former trade partners might cut off supply to the US. A classic example of this is placing tariffs on boots to ensure domestic productive capacity during a war. However, national security concerns are slightly different in Huawei’s case. There are legitimate and serious questions about whether the People’s Republic of China could use Huawei as a tool.

While the company is privately owned, the CIA has alleged that it receives funding from and has close ties to the PRC.  And as a telecom company, it through duplicitous means, could monitor and shut down communication. This would be devastating in times of crisis. In fact, allied intelligence agencies have investigated whether Huawei built into its equipment “backdoors” for government use. Additionally, in times of crisis, the US would be unable to quickly re-establish its own service if the US market is dominated by Huawei. Reasonably then, policymakers must object to its imports to guard our security and communications infrastructure from being compromised by one of the US’s most powerful rivals.

Justification #4: Innovation

Furthermore, letting Huawei’s incredibly fast and new, 5G network into the US market would stifle American innovation. Its monopoly on the 5G market would make any US foray into the market unprofitable in the short-term, preventing US technology development in the long-term. And of course, with any monopoly, Huawei would be able to charge exorbitant prices and strangle new up-starts once it has established its stranglehold. But more importantly, the US has been the leading country in technology and innovation for the past century, but the US is already falling behind while China surges.

The Future

The Trump Administration has already taken action against Huawei. On top of its trade war with China, it has empowered federal departments to block Huawei products and leaned on close allies, especially ones we share intelligence with, to refuse any Huawei technology. These policies are already hurting Huawei: CNBC reported that the company “is preparing for a 40% to 60% drop in international smartphone shipments,” and many companies, like Google and Android, have followed the US’s example. Protectionism decreases the total economic surplus, but in some cases, against some looming threats, for some achievable goals, it is necessary to ensure both liberty and safety.

About the author

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I write about economics, technology, and markets. I am a freshman at the University of Washington.