White House and Commerce Department put China’s tech sector on notice
AEIdeas
The Trump administration enacted two significant items last week. One is aimed at “inbound” threats embedded in what US companies buy from China and other countries; the other is focused on the “outbound,” prohibiting what US companies can sell or license to a specific company, the Chinese network equipment giant Huawei. This is long overdue. The actions follow two decades of intelligence gathering and experience documenting the risk of the products and services of firms associated with the Chinese government and military, repeated trade violations, and cyberattacks, including the one on the Office of Personnel Management, which compromised some 20 million personal records with sensitive information. Hearings in the Senate Judiciary and Intelligence Committees corroborate the need for these decisive actions, including the item specifically focused on Huawei.
Last week President Trump signed an executive order securing the information and communications technology and services supply chain. This prohibits ICT transactions with foreign adversaries posing risks of espionage, sabotage, subversion, or threats to the resiliency of critical infrastructure and digital economy. It directs the Commerce Department to work with federal agencies over 150 days (from publication in the Federal Register) to identify the actors, technologies, and countries to scrutinize as part of the order and to design and negotiate measures to mitigate concerns. This action gives a much-needed boost to investigate the supply chain vulnerabilities evident in the US–China Economic and Security Review Commission’s April 2018 report, which highlights supply chain risks from companies reportedly involved with China’s military, nuclear, or cyberespionage programs and whose products are prevalent in US markets. These include Lenovo, ZTE (formerly on the list), and Tianma Microelectronics.
Products or services from these firms could be used to intentionally disrupt supply chains — or fail through a compromised product, such as batteries, acoustic components, magnets, shielding materials, or cables and power connectors. Information might even be shared outright in a corporate intelligence sharing agreement, whether voluntary or compelled as a requirement of doing business with the Chinese firm.
Placing Huawei on the Department of Commerce’s Entity List is effective immediately. The Department of Commerce’s Bureau of Industry and Security justifies this action based on the Department of Justice’s indictment against Huawei and the company’s violation of the International Emergency Economic Powers Act provision of prohibited financial services to Iran and obstruction of justice. The Trump administration has added 190 entities to the list of some 1,000 restricted entities because of the national security and foreign policy risks they pose. This action prohibits US firms from doing business with Huawei without first obtaining a Department of Commerce license.
The order focuses on the right targets and minimizes damage to the US economy
While it does not name a specific country or technology, the ostensible target of the order are ICT firms associated with the Chinese government and military (whether directly or indirectly). Government influence on the firms comes in many forms, be it through direct ownership, board or management positions, subsidies, or statutes such as China’s 2017 law requiring any Chinese subject to spy on behalf of the government upon request. Importantly, last week the Federal Communications Commission voted unanimously to block China Mobile from operating in the US.
AEI’s Claude Barfield observes that the order:
represents for the first time a direct strike at the heart of Beijing’s telecoms/information technology maze of mercantilist protection. . . . [T]his action has strategic logic behind it. . . . [T]he Trump Administration has finally targeted a core element of the Chinese state-directed tech leviathan. . . . [F]or now the administration has fixed its economic weapons on the right target.
Other than mobile phones, the exposure of Huawei products in the US economy is limited. Many internet service providers purposely avoid using Huawei equipment because of purported backdoors and other security and property risks. Huawei is not essential for 5G, but Qualcomm’s 5G patents and chips are. These are available from a range of other non-threatening vendors, offering small internet service providers meaningful alternatives.
The time for sweet talk is over
AEI’s Marc Thiessen put it well in his piece “Trump didn’t start this trade war, China did”: “Beijing has been waging economic warfare on the United States for years — stealing our intellectual property, forcing our companies to transfer technology as a price of doing business in China and subsidizing state-owned enterprises to prevent U.S. businesses from competing in dozens of sectors of the Chinese economy.” The sentiment is seconded by none other than Senate minority leader Chuck Schumer (D-NY), who tweeted, “Hang tough on China, President @realDonaldTrump. Don’t back down. Strength is the only way to win with China.” The US tried the reasonable dialogue approach for decades, to no avail. With China, heavy-handed action is the only language Communist Party leaders understand.
Be sure to check out AEI’s event “International economics and securing next-generation 5G wireless networks: A conversation with Amb. Robert Strayer” on May 29.
