The 5G race between US and China is now a full-on battle

WHILE the current pandemic exposes the importance of international cooperation, the crackdown on Huawei by the Trump administration has taken on an ominous tone. Senior officials in the White House have drawn up new rules that would require companies to obtain a licence if they use American equipment to make components sold to Huawei. This is a policy that targets Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures Huawei's chipsets, including those for usage in China.

TSMC is the world's largest dedicated semiconductor foundry. Since its factories at the Taiwan headquarters, as well as those around the world, use machines supplied by US vendors such as Applied Materials, the new rules will bar TSMC from serving Huawei. That should stunt Huawei's ability to pursue a 5G strategy and, by definition, thwart Xi Jinping's ambitions of both rolling out 5G inside China, as well as exporting Chinese technologies abroad.

Never before has the United States revised its regulatory regime to target a specific firm so completely. Such a crackdown is a far cry from barring imports for national security or seeking legal redress for infringements of one's intellectual property. Rather, it is a full-on assault, leveraging the weight of an entire country to destroy one company.

But at what cost? It would seem the rule of law is out, replaced by brute force.

The unpleasant fact remains this: The historical total control of the high-tech sector by America cannot hold. Powerful incumbents like Cisco and Alcatel-Lucent, along with Nokia and Ericsson, have long been disrupted by new entrants, much like how General Motor, Ford and Chrysler were disrupted by Japan's Toyota and Honda and Korea's Hyundai some 20 years ago.

Similarly, Huawei is no longer a scrappy startup doing businesses only in the "third world".

Today, Huawei files the most patents in the world, spends more money on research than Cisco, Nokia or Ericsson and earns half its revenue from outside of China. It has more than 40,000 non-Chinese employees on its payroll, boasts an income twice as much as that of Cisco and significantly more than that of IBM, and has been said by British telecom network BT to be "the only one true 5G supplier". And without Huawei, Apple would not have its largest international market, China, which just cannot seem to buy enough iPhones.

Facebook would not have a well-connected India, Bangladesh, and the entire continent of Africa for the overseas expansion of its social network. And for the rest of us, the idea of using technology to alleviate the suffering of billions of impoverished people has historically been made possible, thanks to new entrants who do not mind doing the scrappiest work in town.

The lesson here is there is no quick fix, and the solution is certainly not to direct hatred and fear towards one company in a doomed last effort. All seems broken and in ruins, but it is not. However, it does require a pivot, a shift, in our focus to do what matters.

UNCERTAIN TIMES

The battle over 5G is not about some basic, or even applied, research agendas spearheaded in Silicon Valley or Shenzhen. The battle is about product standards. What is at stake today is the mundane, unexciting coordination factors required to grow a network at scale. Inside the United States, fiefdoms are vying for power. The day the Federal Communications Commission (FCC) considered assigning the low-frequency spectrum to the 5G network, Nasa and the National Oceanic and Atmospheric Administration protested, claiming doing so would affect the reliability of weather forecasts because of radio interference disrupting satellite equipment.

]At a time when China is aggressively pushing ahead with 5G, the American wireless communications policy is being overseen by an astonishing tangle of agencies. All have overlapping interests and bureaucratic turf to protect. And most notably, the agency most closely charged with overseeing 5G - the National Telecommunications and Information Administration - has not had a leader for months, with no director even nominated. The technology risk that the US is facing is largely due to a lack of leadership.

We do not know if Huawei will survive. But we do know it is not going to give up the struggle and the Chinese government will not halt its pursuit of advanced technologies. "This is going to have a far more negative impact on US companies than it will on Huawei, because Huawei will develop its own supply chain," trade lawyer Doug Jacobson said. "Ultimately, Huawei will find alternatives."

In other words, shutting out Huawei will not stop China from implementing 5G faster than the US, a classic worry among security hawks.

But the isolation policy will simply reduce the US' ability to monitor, let alone influence, the emergence of the 5G standard in places where China possesses a strong influence. These are not only places like Uzbekistan, Kazakhstan and Tajikistan, but also Brunei, Thailand and Malaysia.

The chairman of Huawei went further: "I don't think the Chinese government will just watch and let Huawei be slaughtered on a chopping board." He implied that the Chinese government "will also take some countermeasures". If the Cold War has taught us anything, it is that maintaining a degree of openness with your adversary is always the best defence against a catastrophic outcome.

As for the US economy, uncertainties are always bad. Companies thrive on stability and predictability. When demand becomes uncertain, businesses pull back investment. If you were Applied Materials or any US company, upon learning that the biggest Asian client in Taiwan may not be able to sell products to its customers in China, would you expand production or pause all investment and lay off workers to preserve cash? It is a dire dilemma in normal times - and even more so during a looming recession due to a global pandemic.

What all this is really telling Beijing is that all bets are off. Welcome to the battle zone.