Dr. Kalyanaram is a highly cited scholar whose research covers Management Science; Education and Public Policy; Economics; and Innovation.  He has been a distinguished scholar at the Woodrow Wilson Center for International Scholars, and the East-European and Russian Research Center.  

US-China Trade Negotiations Rightly Includes Resolution on Huawei’s Contributions

US-China Trade Negotiations Rightly Includes Resolution on Huawei’s Contributions

US-China trade and other disputes have injected great uncertainty in global economy and geo-politics.  The disputes have thrown a shadow over US economy and society.  Now, we learn that Presidents Trump and Xi have agreed to resume the dialogue to resolve the disputes.  That’s good news, though there is no promise of final resolution of disputes.  Time will tell. 

President Trump had to make two concessions to President Xi.  One, the US will not impose new 25 percent tariffs on $300 billion in Chinese imports.  Two, US has agreed to lift some restrictions on Huawei, including sales of American components to the telecom giant.

Lifting Some Restrictions on Huawei Is Prudent, And More Could be Done

The decision to lift some of the restrictions on Huawei is a prudent and mutually beneficial move.  As matter of negotiating chip, there are still many pending restrictions on Huawei.  For instance, the Commerce Department will now review its legal measures restricting the exports.  There are also Justice Department actions against the company and one of its executives, both of whom have denied wrongdoing. 

The US administration should consider relaxing the restrictions further.  Such action will not only engender the goodwill of Chinese government, it will also enhance the productivity and innovation.

The security concerns relating to Huawei equipment, even if based on sound evidence, can be substantially ameliorated.  And on balance, there is much business and economic value in engaging with Huawei. 

Security Concerns Can be Addressed

The European countries, including France, Germany and UK, have reviewed the potential security threats posed by Huawei equipment and concluded that these threats can be materially obviated with appropriate mechanisms. 

For instance, UK review concluded that “underlying defects” left the company’s software and cyber-security systems open to hackers, posing “significant” security issues. Even so, the report mainly blamed sloppy engineering and found no evidence that the vulnerabilities had been introduced at the direction of Chinese authorities; it also stopped short of proposing an outright ban. 

Nevertheless, out of abundant caution, they have restricted Huawei from participating in a few specifically identified highly-sensitive sectors. 

The US could do the same.  There are many possible instruments.  For instance, the US can place Huawei on a probation for a stipulate number of years as it is commonly done in “deferred prosecution” status.  And the case against Meng Wenzhou, the CFO of Huawei, can be resolved through a Non Prosecution Agreement.

Global Competition Forces Re-Think on Supply to Huawei

Huawei is a major customer of United States chip makers, and ban on sales to Huawei had created a dismal outlook for these companies.   So, the chip makers found a way to circumvent the ban on sale of American technology: take advantage of a provision on labeling American-made goods because goods produced by American companies overseas are not generally considered American-made.  

Even if the American companies were bludgeoned into submission, there are others and the American companies would be losing business to a competitor.  For instance, Micron competes with South Korean companies like Samsung and SK Hynix to supply memory chips that go into Huawei’s smartphones. If Micron is unable to sell to Huawei, orders could easily be shifted to those rivals.

Huawei, The 5G Leader

Huawei has become the leader of fifth-generation (5G) mobile telephony. 5G will offer hugely faster data speeds than today’s mobile technology, which is important for consumers. Huawei secured the 5G leadership by designing relevant chips, related product development, and by engaging in setting standards and protocols for 5G.

For instance, Huawei has released a series of 5G based chipsets designed to compete with U.S. and Korean competitors. These chipsets cover most of the telecom field: Kirin 980 chipset for smartphones; Balong 5000 chipset for modems; Tiangong 5G base station; and Kunpeng 920 chipset for the Taishan cloud server.

5G Has Much To Offer

5G will transform every-day consumer experience in many ways.  For instance, we are now at the threshold of dramatically enhanced performance of TV and Smartphone.  Huawei leads in both these domains.

5G will alter the landscape of our society, commerce and economy, and polity in substantial ways.  Take the case of crypto-currencies and block chains. With a clever application of cryptography, we will be able to secure the transfer of money and payment without needing a trusted third party.  No central banks, no clearing houses.  Per most technology and policy experts, the role of traditional currency will diminish in the next decade or two and even disappear.  Obviously, this will change the optics and substance of commerce and conduct. Experts are already discussing regulatory mechanisms for the new world order. 

The crypto-currency and block-chain efficiencies and effectiveness will depend much on the speed of the networks, and the 5G networks will be crucial in this context.  Huawei, as the leader in 5G, will have a big role to play in the design of new global economic and market ecology and order.

5G will impact the manner in which we deliver and receive health care, and our mobility and transportation.

5G will make an enormous difference in providing health care to millions of people in remote locations, as well as training doctors in surgical specialties.  Telecom equipment maker Ericsson is already working with doctors at King's College in London to test 5G-compatible prototypes of touch-sensitive gloves connected to robots. 

5G will accelerate the adoption of self-driving cars and vehicle-to-vehicle communication — where cars exchange their location, speed, acceleration, and direction. The vehicles will know before their drivers do when a truck five vehicles ahead suddenly brakes or another car turns into your blind spot .  These changes will evidently recast mobility and safety.  As with land vehicles, technology will enable communication between drones, and enhance their precision and safety.

Overall, 5G will be the core technology that ensures artificial intelligence functions seamlessly, that driverless cars don’t crash, that machines in automated factories can communicate flawlessly in real time around the world, and that nearly every device on earth will be wired together. 

So, it is evident that Huawei has much to contribute and we must find a way to take advantage Huawei’s leadership in 5G and related technologies.

Note: A version of this article is scheduled to appear in Economics and Public Policy journal.

Update on July 9th: The US government will now issue licenses to companies seeking to sell American-made goods to Huawei, where there is no threat to national security. See here.

Huawei Market Leadership in 5G, and Pricing Strategy for 5G Offerings

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The Case for Lifting Sanctions Against Huawei: 5G Leadership, and Contributions to Artificial Intelligence

The Case for Lifting Sanctions Against Huawei: 5G Leadership, and Contributions to Artificial Intelligence