Not Much of a Concession on Huawei
July 2, 2019
One thing largely unremarked in the accounts of President Trump’s G20 announcements on Huawei is the stony Chinese reaction. This is telling. The Chinese were desperate to get concessions on Huawei. The company would have been forced to stop production within 12 months because of a shortage of irreplaceable U.S. technology. Huawei can't make phones or 5G networks without U.S. components. Saying that some exports from U.S. tech companies could be resumed is a major concession by the president (if he goes through with it), and at first glance, he didn't seem to get much in return. However, the United States can withdraw the reprieve at any time; the administration may hope this gives them leverage in the trade talks. Nor does this mean the "tech war" is over.
China still depends on the United States and other Western nations for advanced technology. China can buy technology, steal it, or send its citizens abroad to learn how to make it. It has done this for decades, and despite the Trump-Xi talks at the G20, the United States is still clamping down on all three of these avenues, blocking Chinese investment in U.S. technology, attempting to strengthen export controls, and making it harder for Chinese students to study here. Some companies are already moving production from China, but the tech relationship between the two countries is complicated and interdependent, and it will be hard for the United States to "decouple." Apple announced it would do more assembly in China, probably to placate the Chinese government, but they aren't moving research or advanced production there, and most companies are following suit by keeping their tech "crown jewels" out of China.
Even with the leverage of being able to threaten Huawei's survival, any trade deal between the United States and China probably won't be sustainable unless the United States caves on its core demands of protecting intellectual property (IP) and equal treatment for U.S. companies. China has built its economy on restricting Western companies in China, stealing IP, and ignoring its World Trade Organization commitments on subsidies and barriers to foreign companies. If President Xi makes concessions on these and lives up to any agreement, it puts the Chinese economy at risk and in turn, this puts the Communist Party at risk. It's easier to make promises to the United States and then not live up to them—that is what has happened in the past on trade.
Does the Trump concession damage national security? No, not in the near term. Caving on trade will damage national security but allowing commodity or end items (for example, the Android software Huawei uses or the finished chips that power its phones) does not increase the risk to national security. It is important to deny Huawei and China access to technologies that provide more advanced production capabilities and avoid errors such as allowing Advanced Micro Devices’ (AMD) transfer of semiconductor technology. If the United States cuts off commodities or low-end tech, it put immense pressure on Huawei, but the Chinese government will not let its leading national champion (and a prime source of intelligence) die because of the United States. It will even do more harm to U.S. companies in the near term than to China by unnecessarily denying sales that pose little risk.
Other countries will draw two lessons from the G20 statements. The first is to go slow on joining the United States in trade actions against China, especially banning Huawei. It's not entirely fair, but it is how some of the United States’ European partners, like Germany, say they see it. They don't want to take sides in the trade war if the United States will end up making concessions to China, and perhaps the greatest drawback to the U.S effort to confront China for its predatory practices is the failure to recruit allies. The second lesson is that the United States has a choke collar on Huawei, and its customers now know that signing a contract with them for 5G does not mean they can deliver if the president changes his mind.
Huawei harms national security primarily when other countries, especially our allies, buy and use its equipment. In the long term, China’s use of espionage and subsidies to build a national champions like Huawei must be confronted, but the near-term effect of the president's G20 announcement is minimal—it does not change the status quo in security. The primary task is to persuade other countries not to buy Huawei. Reminding them of the company's dependence on U.S. technology will only help.
The bigger question is what happens if there is no progress in the trade talks. Difficult as it will be to get China to agree, it will be much more difficult to get it to live up to any agreement. No matter what the outcome, it's hard to seeing the bilateral trade, tech, and investment relationship going back to the old, easy ways. Companies and governments don't trust China as much as they once did, the events in Xinjiang and Hong Kong don't help China's image, and this will hurt it no matter what trade agreement China reaches with the United States.
James Andrew Lewis is a senior vice president at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2019 by the Center for Strategic and International Studies. All rights reserved.