ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter

US should use pause to narrow campaign against Huawei

Overly broad ban on sales risks undermining foundation of American tech power

| China

As U.S. President Donald Trump put it last week, "Huawei is a complicated situation."

After adding the Chinese telecommunications equipment maker in May to a blacklist for companies barred from buying U.S. technologies or services, Trump abruptly announced after meeting Chinese President Xi Jinping on June 29 that "U.S. companies can sell their equipment to Huawei."

He and his advisers quickly added that the relaxation of the sales ban would be limited and that Huawei would remain on the so-called Entity List.

So at this point, it is still unclear exactly what sales will be allowed and whether fierce congressional opposition against rehabilitating Huawei will limit Trump's options.

Trump's peace offering to Xi, however, provides an opening for Washington to reconfigure its sanctions on Huawei to avoid causing critical damage to America's infrastructural power in the information technology sector.

American companies have been major technological drivers of the IT industry over the last several decades, from establishing key platforms and standards to providing critical components and services. Foreign companies often rely on American talent to create their own IT products and services, adding to the centrality of U.S. technology.

Moving to cut off Huawei from access to American IT industrial infrastructure heightens the risk for others of relying on these technologies and consequently lowers their value. Where before foreign companies might be reasonably happy to rely on technological inputs from American oligopolies for their own products and services, the Huawei ban will inevitably make them reconsider this dependence.

Consider how the ban blocked Huawei from using Google's spectacularly successful Android smartphone operating system and its Google Play app store. America has been rather good at creating such digital platforms and standards, but the politicization of them via the Huawei ban may impact their future beyond just Google.

In the shortterm, the restrictions are making it difficult for Huawei to sell high-end phones abroad. Longer term, it will simply encourage foreign companies to work on their own alternatives.

An area where America has a veritable strategic lock is electronic design automation software tools for integrated circuit design, a critical technology for generating new microchips for phones and other devices. Two of the three major EDA companies, Synopsys and Cadence Design Systems, are American. The third, Mentor Graphics, was recently acquired by Germany's Siemens but with its technology effectively all American in origin, sales are also restricted by the Huawei ban.

These three companies have decades of material science and chemical engineering knowledge embodied in their software which would be very difficult for anyone to match. Up until now the IC design industry was happy to rely on them. The U.S. threat to kill off Huawei's impressive and hard-earned in-house chip design capabilities will change this calculus of reliance as other foreign companies will be forced to ask themselves who could next be in Washington's crosshairs.

Even in the area of chip lithography where the last significant American company, Silicon Valley Group, was sold to ASML of the Netherlands in 2000, significant technological capabilities remain in the U.S. ASML's sales to Huawei may also be covered by the U.S. ban because of Cymer, an American company it acquired for its deep ultraviolet light technology. The Huawei ban thus just encourages ASML to move resources out of the U.S. and to weaken ties to American technologies.

What heightens the anxiety among foreign companies about relying on America's IT industry infrastructure goes beyond the Huawei ban itself. The lack of clarity around why the U.S. has taken this step has only made things worse.

If the ban was a unilateral follow-up to Washington's limited success at persuading allies to bar Huawei equipment from their telecom networks, intended to undermine the company's ability to supply fifth-generation wireless network infrastructure to anyone, the U.S. has demonstrably failed to convince other nations that this is a reasonable and legitimate step. If Trump's actual purpose was merely to create another bargaining chip for trade negotiations, such a capricious threat to disrupt a globally critical industry can only serve to make others even more sensitive to reliance on U.S. technology.

Huawei is not without sin. The company's intellectual property record in recent years has been more than disappointing given that it now relies on the robust patent regimes of advanced markets for a large share of its profits.

There may be legitimate security concerns with using Huawei 5G equipment in the U.S. given the tense and competitive nature of Sino-American relations. But doing irreparable harm to America's IT infrastructural power is not a wise way to deal with these concerns.

It would be more appropriate to address serious concerns about China's intellectual property regime through the ongoing trade talks and to deal with national security concerns by maintaining restrictions on the use of Huawei networking equipment in the U.S. Flexing infrastructural power too far now will mean there will be much less of it when Washington may really need it down the road.

Douglas Fuller is associate professor in the department of Asian and international studies of the City University of Hong Kong and the author of "Paper Tigers, Hidden Dragons: Companies and the Political Economy of China's Technological Development."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more