Does Huawei Deserve US Sanctions?

May, as Business Insider author Ben Gilbert put it, has been a “terrible, horrible, no good, very bad month” for Chinese telecom giant Huawei. Amid the broader U.S.-China trade war, the U.S. government has intensified its battle against Huawei specifically.

On May 15, the U.S. Commerce Department announced that it had added Huawei and its 70 affiliates to the department’s “Entity List,” based on the conclusion that “Huawei is engaged in activities that are contrary to U.S. national security or foreign policy interest.” This move will ban U.S. companies from selling or transferring U.S. technology to Huawei without U.S. government approval.

U.S. Commerce Secretary Wilbur Ross said in a statement that the decision – backed by U.S. President Donald Trump – will “prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”

The U.S. order immediately caused a chain of destructive consequences for Huawei.

Big U.S. firms took action quickly. Google announced that it would cut off Huawei’s access to its services, both hardware and software. All Huawei smartphones use Google’s Android operating system. Even though Android itself is an open-source software, Google’s decision means that Huawei’s phones will not get access to Gmail, Google Calendar, YouTube, and other Google-owned platforms. It’s undoubtedly a big blow to Huawei in its non-China markets. (Huawei’s Chinese market would not be affected by this, because China completely blocked Google’s services domestically a long time ago.)

Vowing to “fully comply with” the government’s requirements, Lumentum, a U.S. telecom equipment company, announced that it “has discontinued all shipments to Huawei” and “cannot predict when it will be able to resume shipments.” Lumentum’s sales to Huawei accounted for 18 percent of overall revenue in its most recent quarter and about 15 percent of revenue so far in 2019.

Other big names, including chipmakers Intel and Qualcomm, have also decided to stop supplying Huawei.

Following the lead of their U.S. counterparts, British and Japanese companies – including chip designer ARM, mobile carriers Vodafone and EE, and tech giant Panasonic – soon announced plans to cut ties with Huawei in one way or another.

Even the SD Association (the trade group responsible for standardizing SD and micro SD cards) and Wi-Fi Alliance (the organization that certifies wi-fi products for conformity) decided to kick Huawei out, indicating that the Chinese firm might not have a role in setting future standards for those industries.

At this critical moment, Huawei CEO Ren Zhengfei invited major Chinese media outlets to Huawei’s headquarters in Shenzhen on May 21 for a 150-minute interview, during which he assured his clients as well as his employees that Huawei won’t die.

According to the 20,000-plus-word transcript released by Huawei to the public, Ren told the press that Huawei had anticipated the U.S. government’s “sanctions.” Since Meng Wanzhou, Ren’s daughter as well the company’s chief financial officer and deputy chair, was arrested in Vancouver last December at the request of U.S. law enforcement authorities, the whole company had been making preparations, Ren explained. Additionally, Huawei has invested huge amounts of money in developing its own software and hardware for years. Thus, “Huawei is fully prepared,” said Ren. “The American politicians underestimate our strength.”

Particularly on 5G – fifth generation cellular network technology that provides broadband access – Ren was highly confident. He said Huawei's 5G competitiveness is “two to three years” ahead of other vendors, because Huawei’s 5G kit is cheaper, smaller, lighter, and stronger. Most importantly, Huawei’s 5G kit can be installed anywhere without the need to hire a crane, which is a bonus for installation in older cities. Ren argued that the European market would not follow the U.S. lead.

Notably, in contrast to the aggressive nationalism that China’s national media has instigated, Ren appeared to be calm, rational, and even self-critical. In the interview, Ren repeatedly emphasized the importance of globalism and told the Chinese media not to blame U.S. companies that follow U.S. laws. He even warned that “nationalism is detrimental to the country.”

“We joined the WTO [World Trade Organization] with a commitment to others. We should honor the commitment as we got the benefits. The more contributions we make [to the world], the more friends we can unite,” said Ren, implying some discontent with the Chinese government’s present policies.

Nevertheless, Ren still attributed the U.S. sanctions to Huawei’s superiority in the market rather than any wrongdoing on the company’s part.

“We sacrifice ourselves, our families, and our time accompanying our parents just for one ideal – to stand at the highest point in the world, to be world number one …For this ideal, we are bound to clash with the United States sooner or later, ” Ren claimed.

Ren is not alone in this sentiment. A large number of Chinese nationals – not only passionate nationalists but also some liberals – believe that the United States deployed its national power to block the rise of Huawei, as well as other Chinese companies, because it cannot accept its own decline.

According to research company Dell’Oro Group’s report, as of the third quarter of 2018, Huawei had captured a 29 percent share of the global telecom equipment market, increasing its market share by 8 percentage points since 2013. Following Huawei, the Finnish company Nokia and the Swedish company Ericsson in combination shared one-third of the market.

In terms of their 5G network performance, product portfolios, contributions to standardization, R&D investment, product delivery, and so on, Huawei’s competitiveness is far ahead of the other two giants, according to consulting firm Strategy Analytics’ April report.

Meanwhile, not a single U.S. company has joined the ranks of 5G competition.

It’s worth underlining, however, that Chinese nationals, as well as Ren himself, continuously ignore U.S. criticisms of China’s systematic problems, including the lack of the rule of law, inconsistent protection for even legally mandated rights, and a lack of transparency. Yet the U.S. campaign against Huawei is directly related to these systematic problems.

In an interview with CNBC on May 23, U.S. Secretary of State Mike Pompeo once again made clear the U.S. stance toward Huawei – and toward China.

Pompeo said:

The company [Huawei] is deeply tied not only to China, but to the Chinese Communist Party, and that connectivity, the existence of those connections, puts American information that crosses those networks at risk... We need a single place where information can be exchanged, but it has to be a system that has Western values embedded in it, with the rule of law, property rights protections, transparency, and openness. It can’t be a system that is based on the principles of an authoritarian, communist regime… We want the global 5G system, when it’s ultimately built out, to have a Western value set embedded in it.

What Pompeo means, in essence, is that the United States will never allow a global 5G system to be built by Huawei, or any other Chinese company, because the values of an “authoritarian” and “communist” China will never be in harmony with Western values.

Robert D. Williams, executive director of the Paul Tsai China Center at Yale Law School, further explained the U.S. logic in an interview with the Verge. He said:

If one views 5G telecommunications networks as critical infrastructure, then the lack of smoking-gun evidence that a company has previously rigged its hardware at the behest of a foreign government is not dispositive of whether to allow that company’s equipment in 5G networks. The question is whether the risks of espionage or sabotage are unacceptably high, which depends in part on whether the company can credibly claim to be independent of the foreign government in question.

Unfortunately, whatever Huawei claims will never be seen as credible, because China’s current laws do compel Chinese companies, organizations, and individuals to cooperate with intelligence and security services under any circumstances.

During his long interview, Ren nimbly shied away from questions related to the fundamental conflict between China and the United States. He refused to comment about the current situation from a big picture view, saying, “I never studied any social issue of our country… I have no comment on the society as a whole. Nor do I have the energy to study other companies in our country. ”

Smart as Ren is, he must know that his power alone will never be enough to either cure China’s systematic problems or resist U.S. national sanctions. All he can privately hope for now is that the United States and China eventually strike a trade deal, under which the sanctions against his company might be waived, as Trump has hinted.