Chuck Grassley of Iowa, one of the longest-serving Senate Republicans, says he’s worried about the prospect of American telecommunications companies becoming dependent on a Chinese manufacturer whose motives he finds suspect. “I can’t pronounce their name,” Grassley says, “but it starts with an H and ends with a W-E-I. Whenever they’re involved, it scares the devil out of me.”
As Bloomberg reports, Huawei Technologies Co. is China’s biggest tech company by revenue, with sales 60 percent greater than those of the runner-up, JD.com Inc. Huawei is one of the world’s biggest producers of telecommunications networking equipment, despite a de facto ban that prevents America’s four principal wireless carriers—AT&T, Verizon, T-Mobile, and Sprint—from using its gear. The company also makes an ever-growing share of the world’s smartphones. These two factors have rendered it terrifying enough to many American policymakers.
As American and Chinese leaders halt one another’s tech companies for operating freely and openly in their markets, such protectionism will slow the progress of innovation worldwide. How government leaders handle the protection of intellectual property is the big game.
IP is the game that will define US-China commercial relations for the next 20 years, an issue that if mishandled, has the power to hurt global economic growth and make us all poorer.
The issue is currently a battle of free-market capitalism versus state capitalism. American business has dealt with state capitalism before and still has been successful. However, China's state capitalism is at a scale of resources, reach, and authority not seen before.
Having trepidation is not uncalled for in this new global business environment.
James Lewis, a former US State Department cybersecurity expert, now affiliated with the Center for Strategic & International Studies, believes the US has three options for dealing with Huawei - none of them all that great:
1) Throwing vast sums of public money behind American national champions to battle China’s state-owned enterprises - a concept that would be a political challenge in democratic, free-market economy to say the least
2) Subsidizing the only non-Chinese companies that can compete for big equipment contracts—Sweden’s Ericsson AB and Finland’s Nokia - see above
3) Create unbreakable encryption meant to secure hardware that can’t otherwise be trusted - this might not even be possible
As John Edwards of the Lowy Institue points out: "Tangled in this coming dispute are much bigger issues for America, China, and the rest of the world. One is the extent to which the United States may wish to obstruct China’s declared intention of becoming a leading competitor in high-technology industries. Another is the extent to which the Americans wish to frame trade disputes with China as those between a 'liberal international order' created and sustained by the United States and a state-directed transactional and opportunistic challenge by China."
How the leaders handle this matter will define US-China commercial relations for the next 20 years.
Can two nations that are strategic competitors find collaboration and not be overwhelmed by fear, uncertainty, and doubt the empowers politics that will stunt profits and prosperity?
History suggests otherwise. Add the lack of a military alliance and rising nationalism on both sides of the Pacific - it will be a challenge. Boardrooms should plan accordingly.
Enjoy the ride.
Marc A. Ross is the founder of Caracal Global and specializes in global communications and thought leader management at the intersection of politics, policy, and profits. Working with boardrooms and C-Suite executives from multinational corporations, trade associations, and disruptive startups, Marc helps leaders create compelling communications, focused content, and winning commerce.