US-CHINA TRADE RELATIONS, and THE CASE of HUAWEI
As published on MEDIUM.com.
Trump administration deserves credit for its likely success in its negotiations with China on commerce and trade. Once the administration identified that corrective actions were needed in three areas of US-China commerce and trade — huge trade imbalance, intellectual property rights concerns, and cyber security risks — the administration took a very muscular stand. The administration imposed material tariffs on wide swath of imports from China. Such tariffs may have brought some economic pain, but the outcome is likely to be a trade deal that will be considerably more equitable.
After much back and forth, the United States and China may soon reach a trade agreement. There will be concessions on both sides. For instance, China will be buying more American goods. US will probably be not insisting some elements of data and cloud computing.
Such trade agreement will be a boost to not only US and China, but to global business, commerce and trade, not so much for the specifics of the agreement but for the simple fact that the agreement will eliminate huge uncertainty hanging over the market. Markets don’t like uncertainty.
Even as the US and China governments are inching closer on a broad trade agreement, the dispute with Huawei Technologies — the global telecommunication company — lingers. As with the broader trade agreement, the US government will sooner than later find a satisfactory end to this situation because such a solution is likely to be beneficial to all of us. Without a resolution to Huawei situation, the full positive impact of the trade deal may not flow.
The US government’s main complaint against Huawei is that the company’s equipment pose a security threat. Another concern relates to Intellectual Property Rights. The US government, via a Congressional statute (Section 889 of National Defense Authorization Act of 2019), has refused to contract with Huawei to buy its equipment.
Huawei has denied these allegations vigorously. Huawei has filed a complaint in the federal court in Dallas arguing that it is being singled out and discriminated by the US government . Without litigating the facts of the case, let us for a moment assume that the US government’s allegations have adequate merit in them.
Even with this assumption, a solution to the dispute will be a boost to US innovation and competitiveness. The Trump administration will be certainly cognizant of this. Huawei is a significant global player in building infrastructure. It is also an innovator. For instance as reported in recent days, Huawei is working on a viable 5G based TV. Huawei is now leading smart phone sales and technology.
The question, therefore, is this: How does US take take advantage of market dynamics for the benefit of all of us without compromising national security and interests? So, what may be the solution? As Rick Snyder, venture capitalist and former Governor of Michigan, stated in his recent address in Carnegie Endowment for International Peace: “We need to define what is critical and what is not critical. What is national interest? Finding that short list.” Once the US identifies the core areas of national interest, Huawei’s participation in those areas may be restricted till such time as the US government feels confident and reassured. But, in the meantime, Huawei can contribute to other segments of economy. And the government can observe the company’s performance during this time-period. The US has plenty of technological capabilities to supervise and monitor effectively.
This approach has been widely adopted in US, even with firms with substantial criminal liability. This is called deferred prosecution. Where a firm errs, the US government places the firm under watch and gives it another opportunity. Well known global firms, including Deutsche Bank, have entered into such agreements.
This may or may not be a solution to Huawei issues. But the US government and Trump administration will eventually design a Huawei solution. As Rick Snyder acknowledges there is “tension” but as he suggests, “we should be learning and working with Chinese in a constructive fashion.” That’s possible with some clear verification mechanisms.
Not only business and commerce, but geo-political considerations also urge a solution to Huawei situation. After all, China’s government is deeply interested in a solution to this issue. Further, other countries may not only gain a technological lead but also geo-political advantage by engaging with Huawei. Apart from UK which is considering engagement with Huawei, so are Canada (on how to repair the relations) and Switzerland.
The US government must continue its vigilance, but in such cases as in Huawei case there may be solutions that guarantee US national interests and yet utilize the full capacity of market resources.