The Battle Over 5G and Tech Dominance by Andrew Chen C'24
Over the last four years, the Trump administration has made a considerable effort to impede the expansion of Chinese tech companies into both the U.S. and the global economy. The underlying concern is that Chinese Tech Giants such as Huawei, Tencent, Alibaba, and ByteDance, the company behind TikTok, pose threats to U.S. national security and the data privacy of American consumers. Multinational telecommunications equipment and services company, Huawei Technologies Co. has been hit the hardest and provides a good example of the aims and effects of U.S. restrictive measures.
Huawei has long been targeted by U.S. authorities, but it was not until last year that the Trump administration issued an executive order restricting the domestic use of Huawei’s equipment and lobbying allied countries such as the UK, Germany, and Italy to do the same. Even stricter sanctions were imposed this year, which prevented foreign semiconductor companies from selling computer chips designed by U.S. technology to Huawei. Since computer chips are essential to the manufacturing of Huawei’s smartphones and telecommunications equipment, the sanction has effectively cut off its supply chain and hampered production. With such extreme measures being taken, the question arises: is this really about Huawei, or is it something much bigger?
On the surface, U.S. sanctions against Huawei are in response to threats on national and digital security. With a 31% market share in the telecommunications industry, Huawei is a leading force in the race towards 5G, the next generation wireless network technology that will deliver higher data speeds and network capacity, while enabling things like autonomous vehicles, interconnected door locks, and CCTV cameras. However, this cutting-edge technology comes with severe risks, as backdoor vulnerabilities can be easily exploited and the higher number of vectors provide malicious hackers with more and newer ways to attack. Article 7 of China’s 2017 National Intelligence Law, which states “any organization or citizen shall support, assist, and cooperate with the state intelligence work in accordance with the law,” leads to the assumption that Huawei is beholden to China’s Communisty Party. This warrants the general fear that Huawei equipment on U.S. soil grants China control over U.S. broadband networks and exposes the country to Chinese intelligence services. Thus far, there is no proof that Huawei is exploiting its technology to access sensitive information. To refute the allegations, Huawei has even shared its code and allowed Britain's National Cyber Security Center (BNCSC) to scan it for backdoors. Nothing has been found, but nonetheless, Washington remains wary.
So, if there are no tangible security threats, why are such extreme measures still being enforced and escalated on Huawei? The answer is much more nuanced than national security justifications. In large part, it extends into U.S. foreign policy, the ongoing China–U.S. trade war, and the battle for technology supremacy. The regulatory policies enacted on Huawei and many other Chinese tech companies are in fact largely motivated by aims to slow China’s rapid rise in the tech sector and continue to solidify the U.S.’s position as the dominant world power. In other words, the U.S. cannot allow China to gain leverage over such a powerful industry.
China’s technological ascension can be primarily attributed to its top-down government directives and heavy subsidizations, which has led companies like Huawei to see meteoric gains in market share. Many countries complain that the subsidizations and other anticompetitive financing mechanisms give Chinese companies an unfair advantage, as they are able to offer their services at much cheaper prices and effectively undercut global competitors. In 2019, China captured the highest market shares across 12 tech sectors, second only to the U.S.’s position of 25. This poses a significant threat to U.S. tech dominance, which has led to the strict policies and sanctions imposed on Chinese firms. Even just recently, China’s social media app TikTok was pressured into a deal with American-based corporations Oracle and Walmart. The agreement which allotted Oracle a 12.5% stake and Walmart a 7.5% stake in ownership is directed to curb China’s perceived control over the app.
Whether or not the threats that Chinese firms have on U.S. markets are large enough to validate the measures being taken against them, one thing is for certain: the costs are incredibly steep. Besides Chinese tech giants losing more than $280 billion in market value, the telecom and semiconductor industries are struggling with severe headwinds, causing collateral damage at home and abroad. For example, American rural telecom networks have relied on Huawei’s equipment for the last decade. In accordance with the domestic ban on Huawei, it will take a combined $1.8 billion to remove or replace Huawei’s infrastructure. Consequently, this will leave 3 out of 6 rural communities lacking broadband connectivity and the economic development opportunities that come with it. U.S. chip makers are also worried that the loss of sales from China will result in less expenditure for R&D pipelines. In an industry centered around innovation, this could hinder the production of new and better technology. Washington has responded by stating the long-term benefits of the ban will offset the short-term losses, as it will ultimately help create a more fair global semiconductor market. Companies both in the U.S. as well as overseas will no longer have to slash prices to compete with Chinese rivals, and the money saved could then be translated into R&D in the long run.
The other major ramification revolves around the global supply chain. The production of smartphones and other technologies rely on hundreds of different international suppliers, each specializing in specific components. For example, a phone’s screens can be made in South Korea, while the semiconductor chip could be designed in America and the audio chip manufactured in China. By ruling China out of this equation, this will inevitably fracture the global supply chain and force countries to invest more capital into resources that were once provided by China. The global economy in turn will face heavy repercussions and the billions of people around the world who have benefited from increased connectivity may be affected.
As President-Elect Joe Biden prepares to take office next year, it will be interesting to see whether he will double down on the current curtailments or, instead, loosen them and assume a more subtle approach. He has stated thus far that he will be just as, if not more, tough on China. However, many experts propose that Washington needs to be more strategic. Current efforts to kneecap Chinese companies may have the opposite effect, as the disruption in China’s supply chain only incentives them to develop their own chip-making industry. Rather than merely countering China’s rise in the tech world, the government should instead concentrate on advancing its own 5G network and innovative capabilities. Until then, everyone stands to lose.
Andrew Chen is a freshman in the College of Arts and Science planning to study economics, international relations, and behavioral science. He is interested in international business and development, as well as public policy and consumer behavior. In his free time, he enjoys hiking, reading, and spending time with his family.