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Compete or Retreat: Keeping America Ahead in the Huawei Era
 February 21, 2020

Compete or Retreat: Keeping America
Ahead in the Huawei Era

Master historian David McCullough observed that doing policy ignorant of history is like planting cut flowers. U.S. China policy is no exception.

The U.S. responded to Sputnik with public investment in basic research and the human capital to conduct it. The Cold War was understood as a global challenge to national security. Two decades later, Japan, Inc. was seen as a challenge to U.S. economic security, and the U.S. responded with the same public/private playbook.

In both cases, U.S. policy was not to hunker down or wall out.

Proclaimed in 2015, China 2025 spells out a strategic plan understood by U.S policymakers as a challenge to both U.S. national and economic security. The debate over Huawei – China’s proclaimed information technology national champion – invokes both.

Informed by U.S. military and intelligence analysis, in 2018 Congress passed bipartisan legislation – the Foreign Investment Risk Review and Modernization Act (FIRRMA) and the Export Control Reform Act (ECRA) deliberately (and remarkably) coordinated through regular order – to strengthen review both of inbound investment and outbound transactions in emerging and foundational technologies critical to national security. While Congress took pains to distinguish between national and economic security, the Administration’s parallel trade policy negotiations with China (perhaps inevitably) mingled the two.

The same year, Congress passed Section 889 of the FY2019 NDAA banning U.S. government procurement from entities associated with Huawei.

In 2019, the Commerce Department Bureau of Industry and Security added Huawei and 68 global affiliates to its entity list – raising the bar on outbound provision of U.S. technology. At year’s end, Commerce published a Proposed Rule to implement Executive Order 13873 Securing the Information and Communications Technology and Services (“ICTS”) Supply Chain. If made final, the rule would give the Secretary of Commerce unilateral authority to intervene in, block and unwind certain ICTS transactions on national security grounds.

As the 2020 Munich Security Conference highlights, the U.S. strongly lobbies third countries to reject Huawei technology in their 5G infrastructures.

Last but by no means least, Commerce is considering a major change to the longstanding rules governing foreign sales of products containing U.S. content, again with the objective of restricting Huawei-related commerce, albeit with no demonstrable national security nexus. Such a restrictive change could have a major impact on U.S. technology sector cash flow. Reportedly, the Department of Defense’s objection – given its dependence on the sector’s private funding of military and intelligence related research – has been criticized by Members of Congress from both parties.

All told, the impetus to push back against China includes a strong protectionist element and ignores the history of American response to perceived national and economic security challenges that have accompanied its relations with other great powers.

Given the unique, and historically unparalleled nature of the U.S China relationship – economic interdependence and exposure to the common global threats of climate change and nuclear catastrophe – U.S. policymakers would do well to recall the historical record when it comes to U.S. research and development and civilian military innovation. As for technology transfers, global supply chains, and inbound/outbound capital investments, the reforms to existing U.S. government authorities spelled out in FIRRMA and ECRA that take pains to preserve the balance necessary to the public private U.S. technology complex should be honored in regulatory implementation and practice.

Perhaps President Trump has summarized the case best: “The United States cannot, & will not, become such a difficult place to deal with in terms of foreign countries buying our product, including for the always used National Security excuse, that our companies will be forced to leave in order to remain competitive. We want to sell product and goods to China and other countries. That’s what trade is all about. We don’t want to make it impossible to do business with us.”

-- Richard N. Sawaya, Vice President, NFTC