Is Huawei Ban Serving American Interests?

The trade war between America and China escalated recently as negotiations between the two nations broke down. America has taken up the role of an aggressor as it is rapidly mounting pressure on the Chinese government to comply with its demands. One of the steps that America has taken in order to put China under pressure has been to ban Huawei.

Huawei is one of the biggest Chinese companies. This company has extensive operations all over America. America has not directly banned Huawei. However, it has threatened to ban companies which can possibly act against American national interests. Huawei, along with its 70 subsidiaries, has been placed on that list. Americans allege that Huawei has excessive control over the American telecommunications network. This is why it is capable of launching cyber-attacks against America by manipulating the telecom infrastructure.

Experts familiar with the matter are of the opinion that national security is merely a pretence which is being used by America. The reality is actually quite different. Banning Huawei may, in fact, have a profound negative effect on the American economy.

The details regarding these negative effects have been listed down in this article.

Will Hurt American Partners

Huawei has extensive business interests with American companies. For instance, Qualcomm, the giant American microchip making company sells more than 10% of its products to Huawei! Also, more than 50% of the overall sales made by Qualcomm are to Chinese entities. Therefore a trade war with China will prove to be particularly expensive for Qualcomm. This is the reason that the share prices of the company tanked as soon as Trump revealed his aggressive stance.

Similarly, there are many more small and medium enterprises which manufacture telecom equipment for 5G Networks. Up until now, Huawei has been a market leader in telecom infrastructure and hence is the largest buyer of such equipment. Hundreds of American companies are likely to see an adverse economic impact as a result of the American government’s decision to ban Huawei.

Forced Upgrades of Equipment

The ban on Huawei will not only hurt those companies which sell to Huawei. It will also hurt companies which buy products from Huawei. Small telecom companies which provide connectivity to the remote areas of the American state are major buyers of Huawei products. Now, with the American government’s ban, a lot of products that they might have recently purchased might end up becoming obsolete. As a result, these small and medium companies will be compelled to use their scarce cash flow to upgrade their equipment. Huawei equipment accounts for close to 20% of the total equipment used by these network carriers. Hence the expense is likely to be substantial. This expense will then make the services expensive, the cost of which will have to be ultimately borne by the American consumer.

Competition is no Better

The American government’s pretence that Huawei may endanger American national interests is actually a weak excuse. This is because, even if Huawei is banned, the situation does not really change from the point of view of America’s national security.

If Huawei products are banned, American companies will be forced to choose between Nokia and Ericsson. Neither of them is an American company. Hence, foreign powers would continue to have an inordinate influence over the American telecom infrastructure regardless of the Huawei ban! Also, a lot of the products which are sold by Nokia and Ericsson are not manufactured by them. Instead, the manufacturing of these products is outsourced to companies in China! Therefore, even after banning Huawei, American businesses would still be using Chinese products. Hence, the national security situation would remain unchanged, and the billions of dollars spent in pointlessly upgrading the equipment would prove to be a total waste.

Lagging Behind in Technology

Technology is the backbone of modern businesses today. America is the hub of technology-based companies. Facebook, Twitter, Netflix, and all such companies rely on faster internet in order to provide better services to consumers. These companies had greatly benefitted last time when the 4G technology was rolled out in America first. They got the first mover advantage wherein they were able to curate their products based on internet speed.

Now, with the American government’s decision, it is likely that America will lag behind when it comes to implementation of 5G networks. This is because Huawei is the world leader in 5G technology. Therefore, until and unless American telecom companies catch up with Huawei, the interests of American tech companies are likely to be negatively affected.

The bottom line is that the negative impact of the Huawei ban in huge. Both American companies and Huawei are likely to suffer. Therefore, it is unlikely that this ban will stay for long. American authorities had also taken similar actions against Huawei’s competitor ZTE in the past. However, that issue was resolved when ZTE agreed to keep $400 million in an escrow account. This $400 million would be paid to America as compensation if ZTE ever acted against American national interests. It is likely that a similar deal will be worked out with Huawei as well. However, in the meanwhile, American consumers and small businesses will continue to suffer.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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