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Economy

Building a Wall Around Huawei Will Not Make America Great Again

May 27 , 2019
  • Li Zheng

    Assistant Research Fellow, China Institutes of Contemporary International Relations

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At this moment, a “border wall” to keep out Huawei is being built in US cyberspace. On May 16, Trump signed an executive order authorizing the US government to identify "foreign adversaries" and ban such targets from entering the US market. On the same day, the US Department of Commerce listed Huawei and its 70 affiliates on the “entity list,” prohibiting US companies from providing products and services to Huawei without authorization. Both US government policies are based on the concept of “decoupling,” which suggests that the United States can guard itself from security threats by cutting off the links between Chinese and US industry.

Consistent with the wishes of the US government, American companies are now reluctantly starting to "decouple" from Huawei. Recently, Google announced that it will suspend some of its business and cooperation with Huawei while awaiting further decisions by the US government. This means that Huawei's overseas users may not be able to continue to use Google's Android system and services in the future, which will have a direct impact on the business interests of the two companies.

“Decoupling” is not a new concept. After the concept of “BRICs” was created, the possibility of “decoupling” the global economy emerged: some scholars believe that even if the Western economies are weak or enter a recession, the “BRICs” countries of Brazil, Russia, India, and China can independently maintain high-speed growth. Thanks to their huge domestic markets and constantly improving industrial chains, emerging economies can maintain economic growth through the domestic market alone. Current American proponents of “decoupling” hold similar assumptions, that is, relying on the US domestic market to “make America great again” in the absence of overseas markets.

The "decoupling" currently proposed by the United States is somewhat different from the previous usage of the term. The purpose of this brand of “decoupling” has been to prevent emerging economies from using the educational resources of Western countries to enhance their economic competitiveness and prevent some enterprises in emerging economies from harming the national security of Western countries. The "decoupling" of the United States is the "Berlin Wall" in the field of technology. It is an obvious anti-globalization measure.

After the 2008 financial crisis, the hypothesis of a BRICs-led “decoupling” proved to be wrong. In a global economic crisis, the debt leverage of emerging economies faces enormous risks. Today, US-led "decoupling" will also test whether the data leverage and capital leverage of US technology giants are solid. Under the political intervention of the US government, "decoupling" may be achieved to a certain extent, but its costs are likely to exceed expectations.

In the view of the US government, "decoupling" will bring back jobs, leaving more scientific and technological talents in America, and prompting the US to form a more inclusive supply chain. However, building a wall can only bring fear and will fail to achieve the intended results.

In the short run, the impact of “decoupling” is that US companies need to find new partners and user groups. Over the past 10 years, America’s Internet industry has quietly undergone a new round of transformation. Today's Internet giants put their main business in the cloud and put the main profit point on cloud services. These companies outsource the production and design of terminal equipment to Chinese companies, reducing the production costs of these end products and facilitating the promotion of products to more developing countries. These increased user groups are the fundamental driving force behind the development of US tech giants.

Today, “decoupling” aimed at Huawei will prompt more American companies and Chinese companies to reconsider the reliability of this model of business cooperation. After all, neither group wants to encounter similar shocks. Compared with the cost of building production lines, US tech giants may be more worried about losing China's "billion-consumer" market and other developing markets. Chinese companies will also consider whether to continue to be tied to the US industrial chain, or whether it’s better to try to use the advantages of marketing and branding to compete directly with America’s tech giants.

In the long run, the US has adopted a political intervention to achieve "decoupling,” fundamentally changing the development environment of the US digital economy. American research and development in the digital realm can no longer be chosen freely, and national security concerns can be cited at will. Huawei is the first company to be labeled as a "foreign adversary" by the US, but it will not be the last.

This kind of political uncertainty will make overseas users unable to trust the reliability of the US cloud service as they did before. The tech industry never wants to experience political meddling or receive a “national” label. However, the Trump administration has tried to shape an "America First" tech industry by changing the free and open environment of the US digital economy. This blunt change means that only certain companies and researchers will be able to freely make market decisions without political restrictions.

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