The powerful U.S. House Permanent Select Committee on Intelligence recommended that U.S. telecom operators and governmental agencies avoid business with Chinese tech giants Huawei and ZTE, according to its October 8 report.
The committee argues that deploying technology supplied by these companies poses a national security risk because of their ties to the Chinese government.
Based on the global market penetration of Huawei and ZTE, clearly this opinion is not shared by our allies like the European Union; nor for that matter, by our geopolitical competitors such as Russia.
Huawei conducts 70% of its business outside of China. Last year it generated more than $4 billion revenue in the European Union, and attained a market-leading position in Russia.
These two global information and communications technology leaders were almost unheard of outside of China 10 years ago. Today, Huawei, the larger of the two, is a $35- billion-per-year company with double-digit annual growth.
It’s the No. 2 global provider of cellular infrastructure after Ericsson, and No. 3 provider in data infrastructure. In all, Huawei supplies equipment to over 500 operators in 140 countries, serving 3 billion people. Huawei’s auditor is KPMG.
Despite Huawei and ZTE’s near universal acceptance and success around the world, the congressional report declares:
“The Committee on Foreign Investment in the United States (CFIUS) must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests. Legislative proposals seeking to expand CFIUS to include purchasing agreements should receive thorough consideration by relevant Congressional committees . . . U.S. network providers and systems developers are strongly encouraged to seek other vendors for their projects.”
Given that the congressional position is completely at odds with the prevailing world view, left unchecked, it will likely trigger trade retaliation from China against U.S companies.
Already, the Chinese PR machine is using the report to claim that the U.S. is protectionist and violates international free trade agreements. Indeed, the Congressional report does not appear consistent with the procedures and spirit of the World Trade Organization (WTO), to which both the U.S. and China belong.
The U.S. is isolated on this matter. The position is not consistent with our fundamental free-trade principals, and frankly there is little upside, either tactically or strategically. Unless the U.S. finds a way to back off, perhaps via the executive branch, the U.S. could very well get burned in this trade battle.