I haven’t written much on China over the last year or so, because my boss asked me not to in order to preserve a little distance between my opinions and my company’s actual research, but today is my last day in the office, so we’re back with everything you never wanted to know about tariffs and trade.
At the beginning of the month, I wrote a brief little blurb about the looming failure of the US and China to reach a trade deal in their negotiations. The escalating trade war that had been heating up since Trump’s 2016 campaign (and honestly before that, we’ve been fighting) was put on a 90-day hold that was further extended when a deal failed to materialize in March, which fell apart on a Monday morning at the beginning of May when we found out China had walked back key points that the US side had thought were settled. When the negotiations failed to produce anything, Trump raised tariffs again, implementing the 25% rate on $200bn of goods that he had earlier postponed.
Here’s the thing about Huawei. The rationale and mechanism used here are national security-related. It works thus: Trump bans US companies from using equipment that poses a national security risk; the Commerce department declares Huawei a security risk; et voila, one freshly baked excuse to target a massive Chinese company.
Huawei is a telecommunications company, at the forefront of 5G technology, the next generation of cellular service, with speeds so fast you could download the entire 8 seasons of Game of Thrones in the time it took your iPhone 6s to load this webpage. It relies on much higher-frequency radio signals to transmit data, which is how it’s so fast — the more frequently the wave “peaks”, the more often you can send pieces of data. But higher frequencies mean more interference and faster signal decay, so instead of a few big, powerful cell towers, you need a lot of small ones blanketing a given area, making the tech ideal for cities.
Basically, it’s really complicated and expensive to make, and requires a huge level of investment to achieve. But a network like that is the only way to build a truly “smart” city, where you have terabytes of traffic data, security footage, aerial vehicle tracking, whatever you can think of, being transmitted per second. Ever tried to use Google Maps on 3G?
Huawei is years ahead of everybody else. Only two other companies are really even in the running (European telecom companies Nokia and Ericsson) and they’re running behind. Here’s the concern: it’s really not that difficult to implant surveillance equipment in pretty much any piece of technology. You could load a virus onto a charging cable, or pretty much any USB slot in the world, that would infect any iPhone plugged into it. Or, say, into a 5G network that you build for another country because you’re the cheapest option.
China, through its Belt and Road initiative, has been offering substantial loans and competitive pricing to countries to get the rights to build 5G networks for them. It’s hard to say no when someone tells you they’ll completely upgrade your city’s communications network for cheap, and they’ll loan you the money to do it on top of that. This could pose serious security risks for any entity connected to that network, and its no secret that no Chinese company can become as big as Huawei without government support and sign-off.
But Huawei vehemently denies that it spies, and there isn’t any hard evidence that they do. Even so, this is merely the most apocalyptic concern. The much more likely, much more boring worry is that China will begin to set standards. The first in any field set the standards, and if China is first to 5G, it will give them a leg up on later network iterations. Look at airport security. Worldwide, you have to put your liquids in 3oz bottles, inside a plastic bag. Remarkably consistent, no? That’s because the US decided that’s what it was doing after 9/11, and wouldn’t accept flights from airports that didn’t comply.
The US tried to get Europeans to stop buying Huawei equipment, citing these concerns, but Europe doesn’t have much patience for us these days, and the UK argues it’s better to let China in the door, and to keep an eye on them, than to shut them out completely and force them to find other ways in. In other words, it’s easier to manage a known threat than an unknown.
The ban on Huawei, though, is devastating. US companies like Google, which owns and distributes the Android operating platform that Huawei’s smartphones use, have cut business with China on account of the ban. China has, in return, said it would retaliate by restricting the export of rare earth metals necessary to build the parts for devices like iPhones.
Although the US issued a 90-day stay (again) to see if a deal could be agreed (likely looking forward to the G20 summit at the end of June, where Xi and Trump will see each other for the first time since the start of escalating tariffs), the prospect of a deal grows ever farther out of reach. Trump is already turning his attention to Mexico, on whom new tariffs were just imposed, throwing a wrench into NAFTA negotiations (yeah those are still going on).
And the closer we get to 2020, the less likely a deal is. Opposing China is WILDLY popular in the US. No matter the demographics, if you’re an American, chances are you support taking China to task for its trade practices. Being seen as strong on China is a winning political move, and unless Beijing caves, Trump can’t be seen to look weak. Meanwhile, in China, trade hawks seem to be gaining influence, as China begins imposing further retaliatory measures and saying shit like “Don’t say we didn’t warn you.” No end in sight. #fpf