Spying, politics, a Princess, the fight for global dominance — this story has it all.
Watching the saga of the trade war is a story about the Chinese state-backed company Huawei. Huawei is expected to become the global leader in smartphones and one of the major players of the 5G and Internet of Things revolution.
Its Harmony OS is an alternative to Android that will work across devices and platforms and could be a genius move.
Huawei had once estimated it would lose $30 Billion due to blacklistings and bans of the United States, it turns out it will be closer to $10 billion. For a company the size and scale of Huawei, that’s not a deal breaker, not even close!
Huawei claims that the revenue generated from its smartphone business will be lower by about $10 billion this year. Trump has used Huawei as a bargaining chip to try to negotiate a more favorable trade deal with China which includes less spying, cloning and unfair theft (including cybersecurity warfare) of the IP of the United States.
The Landscape Before the Cold Tech Wars Begin
If China has a history of cheating, politics and business have come head-to-head in 2019. In mid 2019 China has also reacted to trade tariffs in a way that looks like currency manipulation.
Huawei has been accused of being a national security threat in the United States for years now and also seems to have created surveillance systems in Africa. It’s no secret that China is pro state surveillance with even social credit systems that reward citizens who conform to meet certain standards of conduct and that punish those who do not.
This means Huawei is a technology superpower along fundamental ideological lines. Its global growth along with companies such as Alibaba, ByteDance, Didi, Baidu, Xiaomi, Ant Financial and others points to a maturing technology sector in China that will rise to challenge the United States globally. This heralds the beginning of the end of the United States’ internet having a monopoly over the world.
China Versus the United States
Two major economies, two superpower trading entities, and two battling internets. The bifurcation of the internet is real and Huawei is at the center of the controversy and coming cold tech wars.
Huawei is facing a “life or death crisis” amid continued pressure from the U.S. government, Ren Zhengfei, its founder and CEO, told employees. The trade war is actually a catalyst for China to fuel a New China nationalism that’s anti-American.
This even as most of the Chinese upper middle class prefer to have their children educated in America, live abroad and have careers that don’t depend on staying in mainland China.
Huawei Getting into Its Own Operating System and AI Chips
Huawei is even getting into the artificial intelligence chips sector. This company has a scale that most Western ones cannot compete with, much like how Amazon is feared at home.
The Chinese tech giant is on a U.S. blacklist which restricts American businesses from selling products to Huawei. Those restrictions have been eased for another 90 days. The bottleneck of American pressure is the perfect storm for Huawei to become even more innovative.
The Chinese telecommunications firm has been increasingly caught up in the trade war between the U.S. and China and is widely seen by U.S. officials and analysts as a “security threat” to the United States.
The Future of State-Backed Firms is Like Cheating
If Huawei is indeed a state-backed private firm, we have to admit the possibility that huge companies like Alibaba are or will become such as well. China is inventing rules as it goes along in order to supercharge its rise to dominance in global capitalism.
Huawei has been trying to wean itself off reliance on American technology. The company designs its own processors for its smartphones and recently released an operating system for various devices called Harmony OS. What this does, in reality, is hasten the bifurcation of the internet which was what the great firewall of China did as well.
China Just Needs to Play Catch Up in Cloud, AI, and IoT
China now just has to catch up in the Cloud, in AI and in global entertainment systems like streaming. It’s already ahead in consumer apps and important industries and sectors like FinTech, venture capital and startup innovation. With or without Huawei, China is thought to be the frontrunner to win the cold tech wars, that could last as long as thirty years, as a broad trend.
China’s marketplace will only become even more important to the global economy. China’s contribution to technology and innovation is already becoming so strong that American firms are copying and cloning them, and not just the reverse.
Huawei’s entry into AI chips is aimed at data centers and pits Huawei against U.S. technology companies like Qualcomm and Nvidia. Huawei is facing continued pressure from the U.S. government and is still on a blacklist known as the Entity List.
Chinese Companies are Hungrier
This is making Huawei more “battle hungry” with a culture that’s even more “wolf like”. The same fanatic mentality that can be seen in innovation-centric young Chinese companies like ByteDance, Meituan and Didi.
As Silicon Valley slows down in innovation with monopoly bottlenecks, smartphone saturation and venture capital dysfunction, China is speeding up in innovation and how it can scale promising startups. China’s ecosystem of innovation has decades of runway left to continue to grow and expand, including the important problem of how to attract global talent to contribute.
While Huawei clings to Android for as long as possible, eventually the Chinese “internet” will mature to such a level it will compete against the Western version run by companies like Google, Facebook and Amazon. The cold tech war only occurs when these two “versions” of the internet truly compete for global market share. The challenges being hurled at Huawei are forcing China to adapt.
China Will Emerge Stronger for the Next Global Recession
The U.S. has said that Huawei products carry a risk of allowing Chinese authorities to spy on Americans via backdoors, something the Chinese tech company has repeatedly denied. The United States defense agencies have been warning about Huawei since around 2014. Trying to go after Huawei in 2019 was far too late, as I think history will show.
Estimates and rhetoric that this would destroy Huawei were overstated and exaggerated. A blacklist or a significant tariff forces industry to adapt, the more dangerous element being the uncertainty to the global economy it creates, with even usually strong economies like Germany approaching recession territory in 2019.
In late August 2019, it seems almost certain we’ll experience a recession in the next six to nine months.
When the global recession occurs, expect Chinese companies to rebound so strongly that it will seem like the rise of a new technological dynasty of global firms.
They will be unrivaled because in the 2020s and 2030s they will figure out how to go global in much the same way Apple, Microsoft, Google, Facebook and Amazon did decades before them.
Huawei is a strategic rival in business and technology that no American company (not even Apple) can compete against. It’s right for the United States to fear it. Even Google partnered with Huawei on a smart speaker product. Why do you suppose that is? If you can’t beat them, join them.
American Firms are Desperate to Leverage China’s Lucrative Market
Salesforce partnering recently with Alibaba shows how the importance of the Chinese market means that even as a cold tech war occurs, the East and West will join in ways we do not expect.
The U.S. Department of Commerce added Huawei to a trade blacklist in May, which prevented the company from buying important parts and components from American companies without U.S. government approval. But the implementation of this measure keeps getting pushed back.
In the battle over the future, what’s $10 billion for a company like Huawei? Even as Trump plays Russian roulette with Huawei’s fate, the United States can win many battles, but we all know China will win the war.
All Rights Reserved for Michael K. Spencer