Issue the Executive Order

March 29, 2019

Now that the United Kingdom’s report on Huawei is out, concluding that there is no way to manage the risk of using Huawei equipment, it is time for the U.S. to take the next step. You may think with all the recent clamor that the U.S. position is clear, but foreign partners say it is not. An executive order (EO) on the security of telecom network supply chains and the use of suspect foreign technology would remedy this.

People say there is no smoking gun of Huawei being used for espionage. This is almost true. The experience of the African Union, whose headquarters built as a gift by China using Chinese network equipment found that its data was being sent every night to Shanghai, is an obvious example of how network equipment can be used in China’s expanding global espionage enterprise. Huawei equipment gives China greater intelligence insight into foreign networks. More importantly, it offers tremendous coercive leverage. If a country depends on Huawei, what happens if China decides to turn its networks off for a day or two to signal displeasure? Under Chinese law, there is no way for the company to refuse such requests. In any case, there are deep ties between Huawei and the Chinese state.

The media has been filled with reports that the United States and its allies are split over Huawei. The actual situation is more complex. Many countries share U.S. concerns about the risk of using Chinese equipment and are reluctant to buy it. But buy it they will, since Huawei comes at a significant discount over other suppliers. China subsidizes Huawei for both mercantilist reasons (Huawei uses predatory pricing to drive competitors from the market) and to gain coercive and intelligence advantage—once a nation installs Huawei, it loses control of its national information infrastructure.

The risk is real, countries understand it, but they fear retaliation. This is reasonable. When Australia banned Huawei, China immediately imposed restrictions on Australian coal imports (and coal is Australis biggest export to China). Smaller countries will be willing to ban or restrict Huawei if the United States leads, but they do not want to ban Huawei and then see the United States pull the rug out from under them in the trade talks (these observations are based on conversations with officials from ten different countries over the last two months). Before they confront one of the most powerful countries in the world, they want to see the U.S. act.

The EO’s release has been rumored for months, and there are recurring rumors that an appearance is imminent. This has been going on since August. These reports that the Administration would issue an EO on telecom supply chain security created expectations, and the nonappearance of the EO now creates uncertainty. Countries and companies ask if the U.S will actually ban Huawei, or if it will it become a chip in the trade talks to be exchanged for concession from China.

Australia has completely banned Huawei and argues strongly that this is the best course. Other countries have informal or partial bans on Huawei equipment and exclude it from sensitive areas around military facilities or national capitals. These efforts are not always made public, but perhaps a dozen countries are acting to reduce the risk of using Huawei equipment and others, including some large Asian nations, are considering whether to follow suit.

There are issues with a ban, the most important being that many local telecom service providers use Huawei equipment and cannot afford to rip it out. The big U.S. telecom companies have replaced Huawei and will not buy from it, but smaller local providers cannot afford this. One option would be to subsidize replacement, but the U.S. is unlikely be willing to foot the bill. Another option would be to ban Huawei with a “grandfather clause” that allows companies to replace the equipment over a period of years following their technology “refresh” cycle.

China argues that opposition to Huawei is intended to help U.S competitors. The problem with this is that there are no U.S. competitors—Lucent, the last big American telecom infrastructure manufacturer, went bankrupt years ago. This does not mean that Huawei’s claim that it is the only company capable of supplying 5G is right, since the Western suppliers—Nokia, Ericsson, and Samsung can do this as well or better. Huawei’s primary advantage is its government-subsidized price, and the Chinese government is not paying hundreds of millions of dollars to build another country’s telecom infrastructure because they admire its cuisine.

Ideally, an EO would be part of a larger strategy for managing risk with the next generation of network technologies. The elements of a strategy should include:

1. Close partnerships with the countries that share the assessment of the risk of using Huawei and the need to act to address it.
2. Robust security standards for telecommunications equipment and supply chains (noting that some European customers of Huawei may try to dilute standards to ensure that Huawei has continued access to their markets).
3. Foreign assistance to encourage developing countries not to buy Huawei. We will not match Chinese subsidies, but we can reduce the financial burden of a ban.
4. Support for Western telecom infrastructure companies for research and development.
5. Research on how to securely communicate over international networks that contain Huawei equipment, since many African and Middle Eastern companies already use Huawei.
6. Formal bans (either complete or partial) on the purchase and use of Huawei technology.
7. An EO on telecom supply chain security that clearly lays out U.S. policy.
8. A long-term engagement strategy with China to bring its behavior into conformity with international norms for trade and security. China is not going away. It will always be powerful and the United States, working with its partners, must encourage and require change.

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).

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