Why the US fears China

In the trade war that Donald Trump has launched against China, alleged theft of intellectual property (IP) is at the core of the dispute. In March last year, the US administration initiated a dispute against China at the World Trade Organization (WTO) as the opening barrage against the country’s IP practices. That was just before Washington imposed unilateral tariffs on Chinese exports in retaliation of Beijing’s supposed theft of US trade secrets and forced technology transfer policies.

In a surprise move early in June, the US asked WTO to suspend its dispute with China for six months. But its pressure tactics against Huawei, the world’s largest telecom company, have if anything been stepped. Here, too, the charges are of theft of trade secrets.

In May, reports from the US said charges had been filed against an employee of Huawei Technologies in Texas for taking part in a scheme to misappropriate trade secrets from a semi-conductor start-up, CNEX Labs.

This marks an escalation in the war on the Chinese multinational firm, since it was Huawei which had first filed a case against CNEX accusing it of IP theft and poaching of employees. The start-up was founded by a former Huawei employee.

Why is Huawei the focus? Based in Shenzhen in China’s Guangdong province, Huawei has overtaken Apple as the world’s second-largest smartphone provider and the top supplier of telecom equipment in Europe, Asia and Africa. More importantly, it is the leader of future technologies like 5G and that’s the underpinning for America’s current trade war with China.

The next-generation 5G network will not just offer a quantum leap in data speeds in the making of a global digital nervous system, but will enable radical advances in artificial intelligence, that is, in factory robotics, machine learning networks, clean energy technologies and advanced medical equipment. In short, it will change life as we know it now.

Unfortunately, the US is way behind in the 5G race. That’s why Trump is doing his best to block Huawei’s growth. He has barred US firms from using equipment made by entities considered a national security risk–primarily Huawei–and is also effectively canvassing its allies in Europe to stop doing business with the Chinese giant although it has never been able to validate its allegations.

What is particularly galling to the US is that the gigantic telecom equipment manufacturer is actively involved in determining the global 5G standard, leaving America’s nose out of joint. While China is all set to become the high-tech superpower, America seems clearly in retreat under a president whose protectionist trade policies have undermined US leadership globally.

Washington is now using dirty tricks to rein in Huawei, like having Meng Wanzhou, chief financial officer of Huawei, arrested in Canada at the prodding of the US on the grounds that the company violated trade sanctions against Iran.

Such acts are unlikely to stop China’s inexorable march. Here’s one reason: Huawei has over 56,000 patents on critical telecom technology. It is vigorously pursuing licensing deals and stepping up royalty collection as the US restricts its markets. No bets on who will ultimately win this war.

(This article was first published in Down To Earth's print edition dated July 1-15, 2019)

Trade Economy India