No Huawei out: Prez Trump's game of chicken with China has serious consequences

No cybersecurity rules means networks are destined to be balkanized


Economic impacts

On Wednesday, the Semiconductor Industry Association cautioned that the media had overstated the scope of Huawei's temporary license.

“The license is narrowly focused and does not allay our concerns about economic impacts on the semiconductor industry," the group said in a statement.

"The license only allows continued exports of parts for servicing related to existing (as of May 16, 2019) networks and handsets, not exports for new products. No new sales to Huawei for new equipment are permitted. As a result, the license offers only very limited relief to suppliers of Huawei, including U.S. semiconductor companies, as the majority of their business with Huawei involves sales for new devices."

Kennedy, with CSIS, isn't convinced the potential economic consequences of this trade war will affect decision making.

"The folks pushing this in the US government don't care about the consequences for Huawei or those it does business with because they think Huawei is such a national security risk that the damage done to businesses is worth it," he said.

Kennedy said there are a wide range of possible outcomes. "At the extreme, the US could continue to pull up the drawbridge and sever its economic ties with China along high-tech lines. We would see the world split into Chinese and non-Chinese tech hemispheres."

The best outcome, he said, is a truce involving a broad trade deal that lays clear rules for two countries moving forward and promotes ongoing dialogue.

"This is in some ways a game of chicken between two hardline governments that are very nationalistic and see that it's in their domestic political interests to take a firm stance," he said.

Pointing to the US agreements with the Soviet Union about nuclear weapons, Kennedy said, "We need the same type of rules of the road for cybersecurity and we don't have that right now

Weber, with UC Berkeley, said while it's difficult to believe the global supply chain that developed over the past thirty years might break, the Trump administration appears to be committed to undoing it.

"It's a determined effort to pull as much of that supply chain back inside the US border as they possibly can," he said. "They won't succeed 100 per cent but we might surprise ourselves."

There are risks to both American and China in this standoff. While Weber believes the US has the upper hand in the short term, he contends China, if it can navigate the internal political risks of disruption, has the long term advantage because of its size and resources. China, he said, could shut Apple out of the Chinese market and that would hit the US stock market hard.

Already, there are reports that some Chinese, motivated by national interest, are dumping iPhones for Huawei devices.

During a press conference for Chinese media on Tuesday, Huawei CEO and founder Ren Zhengfei tried to avoid assigning blame for the current state of affairs and argued for accommodation. "The media should understand that these US companies and Huawei share the same fate," he said in a transcript provided to The Register by the company. "We are both players in the market economy."

Challenges

Weber said a year and a half ago, in conjunction with the UC Berkeley Center for Long-Term Cybersecurity, he was involved in scenarios that attempted to imagine the challenges of 2025.

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"One of our scenarios was called Barlow's Revenge which was a story about nationalized supply chains," he said. "A year and a half ago, in theory that could happen, but the world was too interconnected to imagine that. Now people are saying we're actually already living in that world."

That's not a scenario likely to appeal to Silicon Valley's free trade contingent. As described on one of the presentation slides, a lot will be lost: "The delicate balance of regulation and innovation in which the digital world thrived for the last 40 years is hollowed out."

Weber expressed optimism that a short term fix will be worked out – that's happened before when ZTE was briefly banned. "My gut tells me that will happen sometime this summer before the 2020 election heats up in the US," he said. "But I don't think the fight will suddenly go away. It will be toned down but I think five years from now we will see significantly greater nationalized supply chains."

Back in 2006, Google, Microsoft and Yahoo urged the Bush administration to treat censorship as a trade barrier and to pressure info-banning countries to open up. The Computer and Communications Industry Association, a tech trade group, repeated that call to the Obama administration in 2009 and Google did so again in 2010.

The answer from previous administrations, said Weber, was to avoid getting dragged in to what the government considered a business model problem and not a foreign policy problem.

Now that the US government has intervened, there are more questions than answers.

"Be careful what you wish for," said Weber. ®

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