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U.S. Can Destroy Huawei

January 30, 2019

Editors note: In China, “stealing is regarded as a national development strategy and a patriotic duty.”

Catch-up is how economists explain the success of China and other fast-growing developing economies. Not having to invent the wheel, the microchip or the theory of continuous improvement is a distinct advantage over having to invent them.

[Holman W. Jenkins, Jr. | January 30, 2019 | WSJ]

This is not a small part of the Huawei story. Its rise in 32 years to be the world’s largest telecom-equipment manufacturer and the second largest maker of smartphones is a story of catch-up—of learning from the West, but also stealing from the West. Or to put it more politely, Huawei has taken advantage of the fact that Beijing is not interested in enforcing the intellectual-property rights of foreigners under Chinese law.

An early Huawei router design was shown to have been filched from Cisco, right down to copying the typos in the instruction manual. This week a U.S. criminal indictment piggybacking on a successful private lawsuit by T-Mobile shows persuasively that Huawei stole the design of a robot, known as Tappy, for testing the durability of cell phones.

Nobody in his right mind thinks these episodes are exceptions. Nobody even needed these episodes to suspect that Huawei’s spectacular success has not been the product entirely of its own ingenuity and hard work (though these have been considerable). U.S. and other Western companies also vigorously “learn” from each other right up to the limit prescribed by our patent laws. In China, there is no limit. Stealing is regarded as a national development strategy and patriotic duty. The U.S. indictment alleges that Huawei even offered bonuses to employees who successfully purloined a competitor’s trade secrets.

This might seem clever, but it points to a problem for China’s own development—and not only because it antagonizes trade partners. China wants higher-order technology and investment from the West. It won’t come if trade secrets aren’t honored and enforced. China’s own firms cannot develop to their potential, at home or globally, if their own intellectual property isn’t secure even as they are distrusted abroad as agents of Chinese spying.

Which brings us to the growing tranche of U.S. legal actions directed at Huawei. We might prefer that prosecution of its chief financial officer, Meng Wanzhou, now awaiting extradition from Canada, were over something other than violating U.S. sanctions on Iran. But the U.S. is nonetheless positioning itself to destroy China’s shiniest success story, as it almost did ZTE until Donald Trump relented in a last-minute olive branch to Xi Jinping.

If Ms. Meng is extradited and convicted, she can be given a stiff prison sentence. The U.S can impose heavy fines on her company for sanctions-busting as well as for unrelated technology convictions. The long arm of U.S. law can seize Huawei assets and threaten key employees—including founder and CEO Ren Zhengfei—with arrest if they set foot outside China. Washington can also turn up the pressure on other nations to exclude Huawei equipment from their networks. Perhaps most damaging, it can stanch Huawei’s access to still-vital U.S. building-block technologies.

In U.S. Trade Representative Robert Lighthizer, Mr. Trump has a general who probably would be happy to command such a war. Mr. Xi’s government might respond by stirring up patriotic froth in China’s media. Beijing might start seizing U.S. businesspeople as hostages, as it already has done Canadian businesspeople in apparent response to the Meng extradition fight. If so, look out below.

The Trump administration tends to exaggerate how much U.S. prosperity and security depend on getting tough over China’s trade practices. Our national strength is overwhelmingly made at home.

On the other hand, if China wants to go down this road, it might as well unfurl a banner declaring itself North Korea writ huge—a country that intends to thumb its nose at international norms, a pirate nation living by blackmail and theft. Six years ago this column was spanked by foreign-policy types for saying a tad too bluntly that stealing was an activity that “unites the private and public selves of Chinese officials.” But it’s true. For the sake of its own development, China needs to start separating business from the state, and holding its companies to some cognizable standard of lawfulness.

So here’s a question: Do you trust both sides to manage this conflict? Washington should be able to mete out technology sanctions, arguably necessary to protect U.S. security and military advantage, without throwing the entire economic relationship out the window. It can uphold our laws and prosecute Huawei for clear violations without trying to bury China’s entire output of exported iPhones, coat hangers and flat-screen TVs in tariffs.

For its part, getting into a full-scale economic war over practices that Beijing knows are indefensible and need to change would be an exceedingly poor decision by China’s maximum leader, Mr. Xi. Unfortunately, poor decisions have been a métier, off and on, of China’s Communist Party over the past 70 years.

We should not kid ourselves about the risks. Not all risks can or should be avoided, however.


Showing 2 reactions

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  • Robert Cline
    I hope they do!
  • Greg Owens
    I think the last two lines in this piece are something we all need start accepting and point out conversations about fixing our trade problem. There are no painless risk free magic button solutions. The west has been lured into a love of cheap, subsidized Chinese goods and that addiction will be hard to break. The current situation is neither healthy nor sustainable. In the end, like all addicts, we will be much better off once we find ourselves on the other side of the process. Time to find a source for tinny screws and start making Cell phones in Texas. It CAN be done!