Autoimmune disorders occur when a system aims to protect itself but, instead, turns inward and destroys itself. That’s exactly what’s happening to the U.S. government and its allies as they pursue economic sanctions against technology made by Huawei.
The prohibitions and bans on Huawei run the risk of backfiring, in at least four dimensions:
Unrecoverable wasted capital. The rip-and-replace requirement imposed by bans on Huawei equipment by the UK government has already cost British Telecom US$612m, and they aren’t the only ones impacted. Not only is capital wasted, but so is time. In an industry where things move quickly, telecom operators that lose time risk being left behind.
Lower service quality and reduced economic competitiveness. A recent MedUX report (2023) indicates that London now lags European peers in terms of the quality of 5G network services. The report shows that the overall best 5G mobile experience across Europe is found in Germany, France, Portugal and Italy on key measures of speed, coverage and reliability. According to Rafael Galarreta, chief marketing officer of MedUX, one of the reasons for London’s poor overall relative performance is lagging infrastructure resulting from the Huawei ban imposed in 2020.
Lost revenue from the China market. China has developed a domestic ecosystem which will outcompete incumbent chip manufacturers and consume Chinese domestic market share. Losing revenues from the China market will hit incumbent firms hard. Huawei plays a central role in this ecosystem. Sanctions on Huawei led it to support local start-ups such as YMTC and BOE. In 2020, under the cloud of sanctions, Huawei incorporated YMTC’s 64-layer SSD into the Mate 40 supply chain. Similarly, BOE’s high end screen was accepted into the Huawei system when other OEMs only wanted Samsung and LG screens.
Other suppliers, like oFilm and Lens Tech, survived their early days in part - perhaps, in large part - because they entered the Huawei supply chain. The just released Pura 70 is built with almost all domestic components. China’s semiconductor supply chain has kicked into another gear. It has expanded production of so-called ‘legacy chips’, growing global market share to 39%. Indeed, there are now concerns amongst the western political and policy advisory elite that China’s semiconductor sector could ‘flood the market’ with low cost ‘legacy chips’. This is good for developing countries, but not good for incumbent firms.
Expanded role of open source code undermining IP-rent based business models. Huawei’s open source focuses on core software such as Cloud Computing, Operating Systems, Database and AI. It is one of the world’s largest contributors to open source projects, with 105 repositories currently available. Open source runs counter to the traditional IP-rent driven model that has underpinned the commercial dominance of western (US) big tech.
Attempts to hobble Huawei have backfired. Service standards without Huawei involved have declined, as the case of London 5G demonstrates. China’s domestic semiconductor capability has been enhanced, in no small part due to the role of Huawei in the development and use of locally developed and produced hardware. Huawei’s operating model is also transforming global IT, as its ongoing contribution to the development of open source solutions undermines the IP-rent model of US big tech. Lower technology costs and lower development costs are the result of these systemic transformations.
If you want to change a system, make sure the cure isn’t going to do more damage than the disease. Rather than killing off any real or imagined foreign virus, efforts to hobble Huawei might just kill off the very host organism they were created to protect.
Warwick Powell is Adjunct Professor at Queensland University of Technology, Senior Fellow at Taihe Institute, and author of China, Trust and Digital Supply Chains. Dynamics of a Zero Trust World.
