Pressure builds on Huawei (part 1)
26 Jun 2019|

A global struggle over the future of communications is underway. It is centred on Huawei, China’s ‘national champion’ in communications, and notably its leading role in the emerging technology of 5G. The remainder of 2019 is shaping up to be a decisive period in the struggle; developments in the next few months will determine the terms of 5G’s worldwide adoption.

For the first time in living memory, the United States is facing a strategic challenge to its position at the forefront of communications technology and infrastructure networks. Alarmed by the rapid accretion of China’s influence in the field, the US has taken the initiative against Huawei. Moving decisively against the company across a range of areas, the US government is exploiting Huawei’s principal vulnerability: its continued reliance on the outside world. It is a perfect example of what Henry Farrell and Abraham Newman have dubbed ‘weaponising interdependence’—governments using the characteristics of the globalised economy to further their strategic goals.

On 15 May, President Donald Trump issued an executive order prohibiting the sale of American technology to Huawei and other companies that are ‘subject to the jurisdiction or direction of a foreign adversary’. The US Commerce Department also placed Huawei and its affiliates on a list of entities requiring permission from the department to purchase American technology.

The potential effects of these directions are massive. This is because Huawei remains dependent on a range of American components for its hardware. Critical links in its supply chains, particularly in relation to semiconductors, are based in the US and therefore vulnerable to an embargo. Huawei smartphones, for instance, use radio frequency chipsets supplied by American firms Qualcomm, Skyworks and Qorvo. American suppliers also dominate the specialised markets for photonic modules and antennae Huawei uses in its network hardware.

Although Huawei claims to have stockpiled semiconductors in anticipation of this eventuality, there can be no escaping the magnitude of its implications for Huawei’s operations. The ban is reported to affect 1,200 US suppliers and restrict US$11 billion in annual sales to Huawei. Nor are substitute sources readily available. Japan’s Tokyo Electron, a major supplier of semiconductor manufacturing equipment, has also announced its intention to cease sales to Huawei, despite not being subject to US law. However, Taiwan Semiconductor Manufacturing Company, one of Huawei’s main suppliers, has stated that it will continue its cross-strait sales, while conceding that the US moves ‘certainly will have some impact in the short term’.

The US embargo also has major implications for software. Huawei has virtually no alternative source for the software it relies on. While it has its own chip design unit, HiSilicon, it relies on American electronic design automation software to do so. The chip architecture HiSilicon uses is patented by British company ARM, which has signalled that it will no longer license its patents to Huawei. Google has also declared that it will no longer supply Huawei with the Android OS, which powers three-quarters of the world’s mobile phones, or the suite of Google apps. Huawei now faces the challenge of filling gaping holes in enterprise and consumer software, along with the difficulties it will face manufacturing its hardware without American semiconductors.

The ban on American sales to Huawei came after the company had effectively been frozen out of dealings with important US institutions. Huawei’s ties with American universities, nine of which had received US$10.6 million in ‘gifts’ and research contracts from the company since 2012, were a key target. In August 2018, Trump signed the National Defense Authorization Act, which bars the US government and contractors from using equipment or services provided by proscribed organisations, including Huawei, ZTE, Hikvision and other Chinese enterprises. One of its provisions is that entities that receive federal funding are no longer eligible if they breach the act. This is a serious threat to universities whose research budgets are highly dependent on federal funding. The NDAA has led major US universities, including Princeton, Stanford and MIT, to sever their ties with Huawei.

These measures have effectively closed American higher education to the company, which will no longer be able to access world-leading research relevant to communications technology. Harvesting expertise from the US corporate sector will become more difficult as well, as US authorities are also slowing their approvals of Chinese nationals to secure technical jobs within American semiconductor companies.

No legal mechanism was necessary to block Huawei from supplying 5G network equipment to the major US mobile carriers, which have pledged to source hardware only from ‘trusted vendors’.

The wide range of measures targeting Huawei demonstrates that it is a serious and considered approach; it’s a decisive change in US policy that will have major consequences in both the short- and long term.

In the long term, Adam Segal has suggested that Beijing understands that Washington’s actions against its high-tech ‘national champions’ aren’t temporary but mark a strategic shift towards ‘technology containment’ in response to China’s gains in advanced technology.

Following the Trump administration’s moves against ZTE in April 2018, later softened, Chinese President Xi Jinping advocated the pursuit of self-determination in advanced technology, describing ‘core technologies’ as ‘important instruments of the state’. In July 2018 he told a party committee, ‘China must improve innovation capabilities for key and core technologies and keep a firm hold on the initiative in the development of science and technology to offer a strong technological guarantee for China’s development.’

Along with pursuing self-sufficiency, Huawei may also look for other ways to insulate itself from American measures, such as investing in third-party nations’ technology sectors, encouraging key Taiwanese suppliers to relocate to the mainland, and continuing or escalating cyber-enabled intellectual property theft. However, it is estimated by one expert that it will take China a decade to develop its own semiconductor capabilities, likely at tremendous cost.

Irrespective of the long-term implications for Huawei and China’s technological development, the US actions against the company will have considerable implications for the immediate future. They have plunged Huawei into crisis. Huawei’s engineers are reported to be working overtime in response to the US measures. In the words of one employee, ‘This is a war about China having an independent communications technology industry.’

But the problems Huawei’s now facing cannot necessarily be overcome by the sheer application of labour power. For the first time since the beginning of its meteoric rise on the world stage, the company is facing serious pressure. The coming months will test Huawei’s resilience in a way it has never been tested before.