Why the US is targeting Huawei

The official story is that Huawei Technologies is a security risk, due to its alleged links with the Chinese military. It also flouted the US sanctions against Iran by selling it telecom equipment that included US components. But there’s a very plausible alternative explanation.

Consider Chart 1. It compares the US and China’s shares of world GDP at current prices in US dollars from 2000 onwards. Note the steady rise in China’s share. The US share of the global economy has been falling, although its share has stabilised in recent years, due partly to the continuing weakness of Europe and partly due to dollar strength.

If we take purchasing power parity (PPP) instead of current dollars as our yardstick, then the IMF says China’s share of the global economy is already bigger than that of the US. In 2000, China’s share, in PPP terms was 7.4 percent of the world economy, while the US share was 20.5 percent. By 2018, the US share had come down to 15.2 percent, while China’s had increased to 18.7 percent. There has been plenty of commentary on the decline of the US and the rise of China and Chart 1 illustrates that.

There is, however, a vibrant part of the US economy that is at the cutting edge of technology. The US tech sector is a world leader. Chart 2 shows the global rankings in the amount of R&D expenditure of the top multinationals. Most of the companies at the top of the list are tech companies and from the US. The lone interloper from China is Huawei Technologies.

A recent Bloomberg article said that Huawei had 56492 patents on telecommunications, networking and other hi-tech innovations. An FT article said that Huawei had a market share of 28.6 percent of the global telecom market share in 2018 and is the leading player in 5G technology. The article said, ‘A study by the Center for Strategic and International Studies, a Washington-based think-tank, showed that of 288 instances where 5G was tested, piloted or made available on a commercial basis around the world until April 2019, Huawei’s equipment was deployed in 29.5 per cent of the cases, Ericsson in 29.5 per cent, and Nokia in 22.6 per cent.’ Clearly, Huawei is at the forefront of Chinese technology and creating hurdles for Huawei will mean disabling a strong competitor to US companies.

As for the security threat by Huawei, this is what the New York Times wrote in 2014: ‘even as the United States made a public case about the dangers of buying from Huawei, classified documents show that the National Security Agency was creating its own back doors — directly into Huawei’s networks.

The agency pried its way into the servers in Huawei’s sealed headquarters in Shenzhen, China’s industrial heart, according to N.S.A. documents provided by the former contractor Edward J. Snowden. It obtained information about the workings of the giant routers and complex digital switches that Huawei boasts connect a third of the world’s population, and monitored communications of the company’s top executives.

One of the goals of the operation, code-named “Shotgiant,” was to find any links between Huawei and the People’s Liberation Army, one 2010 document made clear. But the plans went further: to exploit Huawei’s technology so that when the company sold equipment to other countries — including both allies and nations that avoid buying American products — the N.S.A. could roam through their computer and telephone networks to conduct surveillance and, if ordered by the president, offensive cyberoperations.’

It’s very likely that the assault on Huawei is part and parcel of the US battle to retain its hi-tech edge and thwart China’s plans to catch up and even overtake it.