Trump's Huawei ban escalates the US-China trade war into a tech Cold War

AP

US President Donald Trump and Chinese President Xi Jinping walk together at Mar-a-Lago in 2017.

• By giving Huawei Technologies the so-called "death penalty" the Trump administration has shown that it does not trust Chinese government to act in good faith.
• Consider this a major impediment to any kind of trade deal.
• The US isn't just trying to block China's companies from US markets anymore, it's trying to block them from markets all around the world.
• In this environment "divorce is a real risk."
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By giving Huawei Technologies the "death penalty," the Trump administration has escalated tensions between the US and China to a level of hostility akin to a tech Cold War

On Tuesday the Trump administration put the Huawei on the Commerce Department's "Entity List." It sounds benign, but the listing makes it nearly impossible for a company on the list to do business with American firms.

This is a big problem for Huawei considering the US is home to one in four of Huawei's suppliers including chip makers Qualcomm and Micron Technology. Analysts at Eurasia Group pointed out that without US suppliers, Huawei would be unable to conduct even routine maintenance and hardware replacement.

Given the severity of the action, the implications of the Huawei situation are much more far reaching than Trump's tariffs on Chinese goods. In cutting off Huawei's supplies, the Trump administration is directly attacking a company tied to the Chinese government.

And there could be more to come. A bipartisan group of Senators is working on legislation would put a ban on selling technology to any Chinese company that violates US sanctions by doing businesses in countries like North Korea or Iran.

There's also a bill sitting in the Senate Judiciary Committee called the China Technology Transfer Control Act. It would put all core technologies developed through China's 'Made in China 2025' technology push on the Commerce Department's export control list along with Huawei.

'Made in China 2025' is meant to be the next phase in the China's plan to evolve it's economy into a major player in the global tech market. The China Technology Transfer Control Act would put a wrench in those plans.

These are more than trade war moves, they're Cold War moves.

For those who's memory of Chinese history only goes back to its last opening to the West the 1970s, this is probably a jolt. But the reality of the US relationship with China is that it is one of opening and closing - trust and hostility - going back to the 18th century.

And right now, it seems like the pendulum has swung back toward hostility once again.

What is Huawei?

We know that Huawei makes phones and other telecommunications technology. We also know that the Department of Justice charged Huawei for attempting to steal technology from a US company (a rather basic looking T-Mobile robot named Tappy), and violating US sanctions to do business with Iran. We also know that we know next to nothing about who really controls the company aside from the founder Ren Zhengfei.

After going to university, Ren joined the People's Liberation Army and developed technology for them. He left the army in 1982 and founded Huawei in 1987. His daughter, currently under house arrest in Canada as part of the DOJ's case against the firm, is the CFO of the company. Ren owns 1.47% of Huawei, while the rest is owned by a trade union.

When questions about Huawei's control started surfacing in Western media, the company invited reporters to look at a thick book held in a locked glass box at Huawei headquarters. That book, they said, was the list of all the members of the trade union who own shares in Huawei. Those shares do not give them much power, though, and serve more as a profit-sharing agreement.

Economics professor Christopher Balding, formerly of Peking University, and George Washington University Law School professor Donald Clarke wrote a paper examining the control of Huawei in April.

"Given the public nature of trade unions in China, if the ownership stake of the trade union committee is genuine, and if the trade union and its committee function as trade unions generally function in China, then Huawei may be deemed effectively state-owned," they wrote.

This is why the world - and especially the US's closest allies - is so circumspect about letting Huawei rule the future of telecommunications by building out 5G networks.

The former head of the UK intelligence agency,MI6, said allowing the company to do build the new 5G networks in the UK would give the Chinese government a "potentially advantageous exploitative position" in the country. Australia has even banned Huawei from building its 5G infrastructure outright.

Huawei is trying hard to assuage fears that it could build backdoors for the Chinese Communist Party to walk through. It is no doubt using China's vast network of lobbyists, friendly academics, and political allies to do so. And the company has gone so far as to promise to sign no-spy agreements with its customers, which itself is eyebrow-raising.

Tell me why did our love turn cold?

All of this is to say that the US does not trust Huawei. And since Huawei appears to have close ties to the Chinese government, it's safe to say that Trump's move against the company shows that he doesn't trust the Chinese government either.

This has scholars like Balding wondering if a trade deal can even be made under these conditions.

"This lack of trust is more than just an existential or theoretical implication but directly impacts the ability to reach a deal," he wrote as talks collapsed earlier this month.

"A major sticking point, from a variety of reports on multiple levels, appears to have been the issue of enforcement, verifiability, and or commitment... In other words, the lack of trust proved quite consequential."

To many in China the US is being irrational. In January Hong Kong property tycoon Ronnie Chan, an American citizen who sits on the Council on Foreign Relations, told the South China Morning Post:

People said China has been stealing technology. Well first of all, everybody steals technology. And number two, three years ago, I had a discussion with [former CIA director] general David Petraeus and [former US secretary of state] Condoleezza Rice on this subject of stealing technology from one another. Is that something that happened in the last one year? Did it get worse? It didn't get worse, so what changed your mind?

But China has changed. Under Xi Jinping it has become more totalitarian and abusive of human rights. Take the millions of Uighurs living under surveillance and going through reeducation in Xinjiang as one sign, take Xi's never-ending "anti-corruption drive" that has helped to purge his enemies as another.

These changes and China's global ambitions set the stage for a prolonged stand off between the US and China. John Garnault, a former journalist and Australian government official who came to have rare access the Chinese Communist Party's ruling class has argued that Xi is returning to the Chinese Communist Party's Stalinist roots.

Here's an excerpt from a speech Garnault gave for the Asian Strategic and Economic Seminar Series called "Engineers of the Soul: Ideology in Xi Jinping's China":

"The challenge for us is that Xi's project of total ideological control does not stop at China's borders. It is packaged to travel with Chinese students, tourists, migrants and especially money. It flows through the channels of the Chinese language internet, pushes into all the world's major media and cultural spaces and generally keeps pace with and even anticipates China's increasingly global interests."

Cold future

What measures like giving Huawei the "death penalty" will do is sever the economic ties between the US and China. In the foreign policy world this is known as "decoupling" and in March Chinese Premier Li Keqiang called such a notion "unrealistic."

Others, like former Treasury Secretary Hank Paulson, have been less certain. In an address at the Bloomberg New Economy Forum in Singapore last year he said:

"...at this point, after forty years, when we have had one kind of relationship but now, quite clearly, face the daunting task of transitioning to a new one - anchored in a realistic and more sustainable - strategic framework - divorce is a real risk."

That divorce could, according to Paulson, create an economic "iron curtain" dividing the world between the two largest economies.

Thanks to US-China trade tensions, this divorce is already happening in the world of supply chains, albeit with much confusion. Some US companies feel they must leave China, but they aren't exactly sure where to go or how they'll be treated when they get there. It's a mess - the kind of mess that is made when the world gets colder.

This is an opinion column. The thoughts expressed are those of the author.