Chapter 8 - Policy Implications and Responses

Chapter 8: Policy Implications and Responses
1. I. United States Policy Responses to China
2. II. Future European Responses to U.S. Pressure and Chinese Pressure

Chapter 8: Policy Implications and Responses

Based on the qualitative research conducted by the author, this chapter discusses the policy implications of likely Chinese dominance of 5G networks domestically and around the globe and policy and technological responses by the United States and Europe to Chinese dominance in the future of 5G by mainly focusing on the possible scenarios in which China and the United States both try to assert 5G dominance in the European region.

I. United States Policy Responses to China

Assuming that the United States will continue imposing bans or tariffs on China because of trade disputes involving 5G related materials, this section discusses current and possible United States governmental policy responses to China and the Chinese companies that produce, implement, and sell 5G equipment, infrastructure and products, highlights the problems with targeting China, and speculates on the possible policy responses that the new executive administration in the United States could take.

The United States has been targeting Huawei for well over a year. Because of the relationship that Huawei has with the Chinese government and allegations that Huawei will use their networks to support Chinese intelligence, as stated in Chapter 6. I assess that it is highly likely that the United States will continue to impose a ban of Huawei equipment in in the United States due to the security risks surrounding Huawei unlikely to change in the eyes of the intelligence community. The United States will continue to target Huawei with bans because they view Huawei as an extension of the Chinese government. When targeting Huawei, the United States has treated Huawei and their development of 5G technology as an intelligence agency more than as a standalone company in China. This assessment is based on the Chinese Intelligence Laws of 2014 and 2016, as outlined in Chapter 5, which could force Huawei to give the Chinese government access to their networks and the data of all users on their 5G networks. In a survey conducted by the Harvard Business Review, there was less consensus on the politically thornier issue of tech restrictions, such as those imposed on Huawei. While 61% of institutions saw a partial or total lifting of the restrictions, 39% expected the measures to remain in place.¹⁵⁷ National security concerns combined with an increasingly hawkish attitude towards China in both Congress and the American public at large could make softening the U.S. stance in this area unpalatable without significant concessions from Beijing on issues of corporate governance. Another reason that the United States will continue this ban of Huawei equipment is because of the current stance of President Biden, as President Biden has taken similar stances to former president Trump in that he is emphasizing security for the United States and its citizens.

The United States has another possible policy option to lift the tariffs that were imposed on China by former President Trump. In a survey of 67 international institutions carried out recently by the Harvard Business Review, close to 80% of respondents saw Biden either partially or completely removing Trump’s import tariffs. The economic incentives to do so are clear: prices paid by U.S. consumers would fall, and in exchange, China would likely improve market access for American exports.¹⁵⁸ I believe this policy

¹⁵⁷ Reynolds, Oliver, and Arne Pohlman. “What Will the U.S.-China Relationship Look Like in the Biden Era?” Harvard Business Review, 7 Jan. 2021, hbr.org/2021/01/what-will-the-u-s-china-relationship-look-like-in-the-biden-era.

¹⁵⁸ Reynolds, Oliver, and Arne Pohlman. “What Will the U.S.-China Relationship Look Like in the Biden Era?” Harvard Business Review, 7 Jan. 2021, hbr.org/2021/01/what-will-the-u-s-china-relationship-look-like-in-the-biden-era.

option to be unlikely even with the economic incentives to lift the tariffs because lifting the tariffs could be seen as a sign of the United States softening its stance on China amidst their government’s decision to silence citizens in Hong Kong and limit media for Chinese citizens.

As the United States continues to take policy action against China and their 5G companies, it is important to assess possible technological responses that the United States government or companies will have to take to further their own 5G infrastructure and networks. It is important to note that while the U.S. has companies that are wellknown such as AT&T, Verizon, and T-Mobile, these companies do not matter in the race for 5G. The race for 5G is based on 5G infrastructure, not the ability to make 5G phones or have the most users on a data network. While Huawei does have its own “network” or users, it creates and implements the technology for 5G. Companies such as U.S. telecommunications carriers do not make their own technology or infrastructure. Instead, they simply give consumers network capabilities. With this in mind, this section focuses on companies that create and build infrastructure for 5G as well as companies that have 5G patents.

For the United States to win the race for 5G, the United States would need to encourage their companies to continue to create 5G technology and networks that equate to that of the Huawei. Based on the research done, there are only two companies that could potentially beat Huawei in the race to 5G: Qualcomm and Ericcson. Qualcomm, a U.S. based company, owns what are referred to as the most “core patents” for 5G technology meaning they own, not the most overall, but the greatest number of the 5G Technology, U.S.- China Race, and the Competition for Dominance 73 important patents. Ericcson, a European-based company, provides 5G technology for parts of Europe as well as companies around the world. Both of these companies are very important in the 5G race; however, they do not currently have the size and ability that Huawei has in China.

A possible response for the U.S. and others could be to work together with subsidies from Western countries to create and implement 5G technology. This technological response would encourage companies to work together to create advanced networks that rival Chinse networks. If companies like Qualcomm and Ericcson worked together, they could set a price that is comparable, if not equivalent, to that of Huawei. In turn, this would encourage countries to invest in their networks instead of Huawei.

Another option could be for the United States to invest in one of these companies. As theorized by Marco Rubio and other policymakers, if the United States invested in Qualcomm or Ericcson, it would give these companies the resources needed to stay onpar with Huawei’s research and development department. These two companies need more investment because they do not have the resources or capacity to keep up with Huawei because it is backed by all of China. If it is serious about wanting to win the race for 5G the United States, would need to provide major subsidies, loans, or backing for a company like Ericcson or Qualcomm to create 5G networks at the pace of Huawei. Note, this analysis is not claiming that the Huawei networks are better; instead, this analysis is saying that no other companies have the capabilities that Huawei does to implement their networks. This particular option is highly unlikely because the United States does not want to be seen as trying to control the economy. If the United States were to invest in or control a technology company, it could have negative impacts on competition within the U.S. markets and could lead to policies that are skewed towards the company they would invest in.

II. Future European Responses to U.S. Pressure and Chinese Pressure

While Europe is not the focus of this paper, it is important to assess likely European responses to American governmental action and the subsequent counteraction of the Chinese government. As Europe is caught in the middle of this race for 5G dominance, it is important to assess the likelihood of Europe picking a side or continuing to be split between the East and the West. This assessment will focus on the ways in which China could pressure Europe as well as the ways in which the United States could convince more European countries to ban Huawei technologies. European countries are split on what to do in regards to the United States and China, and more specifically, the U.S. stance on Huawei. Some countries have already banned and will continue to ban Huawei; however, some countries are looking at Huawei’s low-price points and are not willing to pass up the economic advantage that choosing Huawei could have, regardless of security risk.

China is very involved in Europe’s economic growth because of trade deals and China’s increased presence in the region. With the threat of European countries backing out of deals due to Huawei security concerns, it is likely that China will retaliate with economic threats. In fact, this has already happened in Germany. In December, China’s ambassador to Berlin threatened to torpedo German car sales in China. Beijing also directed similar warnings at France. ¹⁵⁹ These threats will impact European decision regarding whether to move away from Huawei technology and infrastructure as it could

¹⁵⁹ Bellamy, Daniel. “EU Insists European Companies Could Replace Huawei in 5G Network.” Euronews, 25 July 2020, www.euronews.com/2020/07/25/eu-insists-european-companies-could-replace-huawei-in-5g-network.

create serious economic issues. China is also influencing European countries against switching away by arguing that the United States has similar technology intelligence laws at China. China argues the U.S. mass surveillance as stated by Edward Snowden, revealed to the public makes the US as trustworthy as them.

On the other hand, the United States will likely continue to put pressure on European countries to ban Huawei products similar to what they have done with Britain as mentioned in Chapter 5. To accomplish this goal, the United States could put pressure on the EU by expediting trade agreement negotiations. ¹⁶⁰ These negotiations could help economic growth and assure European countries that the United States will care for them and provide them with the help needed if they exclude Huawei from their networks. The U.S. may be able to use his approach effectively since it is the largest export destination for the EU and their goods, receiving almost twice as much as China.¹⁶¹ This would allow the United States to reason with, not intimidate the EU. The United States could also apply pressure on the EU by focusing on their shared values of democracy. Historically in Europe, Huawei has relied on large-scale lobbying campaign to convince Europeans that it is a trustworthy vendor. Huawei’s campaign highlights the shared values it has with Europe, such as saying that voting for Huawei 5G is voting for European values.¹⁶² However, the United States can use this campaign to its advantage due by pointing out that Huawei’s 5G technologies’ an integral part of China’s campaign to suppress and

¹⁶⁰ Bowler, Tim. “Huawei: Why Is It Being Banned from the UK’s 5G Network?” BBC News, BBC, 14 July 2020, www.bbc.com/news/newsbeat-47041341.

¹⁶¹ Bellamy, Daniel. “EU Insists European Companies Could Replace Huawei in 5G Network.” Euronews, 25 July 2020, www.euronews.com/2020/07/25/eu-insists-european-companies-could-replace-huawei-in-5g-network.

¹⁶² Feng, Emily, and Amy Cheng. “China’s Tech Giant Huawei Spans Much Of The Globe Despite U.S. Efforts To Ban It.” NPR, NPR, 24 Oct. 2019, www.npr.org/2019/10/24/759902041/chinas-tech-giant-huawei-spans-much-of-the-globe-despite-u-sefforts-to-ban-it.

isolate Uighurs in Xinjiang, counter protesters in Hong Kong, and thereby exert greater control over the daily lives of all Chinese. The United States could argue that buying into Huawei subsidizes these actions—which go against the core values of the EU itself. ¹⁶³ This course of action would exert pressure on the EU, not by force, but by using the values of the EU and pointing out sound reasons as to why the EU should be weary of Huawei.

¹⁶³ Fisher, Lucy. “CIA Warning over Huawei.” News | The Times, The Times, 20 Apr. 2019, www.thetimes.co.uk/article/cia-warningover-huawei-rz6xc8kzk.