The Huawei Russia Deal
Huawei is one of the largest Chinese multinationals in the world today. However, the problem is that the American government considers it to be a proxy for the Chinese state. This is why America has banned Huawei while also arresting one of its leaders in Canada. America has also urged its allies not to buy Huawei products and equipment. As a result, several telecom service providers in the United Kingdom and Japan have decided to postpone signing contracts with Huawei.
Not being in Americas good books was costing Huawei a lot of money. Also, it was hurting the Chinese national pride. This is because Huawei is being used symbolically in this trade war. Trump wants to make an example out of Huawei, which he will then use to scare other Chinese firms into submission. The Chinese firms want to prevent this from happening at all costs.
The trade war between Huawei and the American government took an exciting turn as Russias largest service provider MTS has now signed a contract with Huawei. This contract provides Huawei the exclusive rights to upgrade Russias telecom network to 5G. This is a big move and has several economic implications which we will study in detail in the rest of this article.
5G Wars: The fact that Russia is collaborating with Huawei brings back a certain sense of dejà vu! Many economic analysts believe that this could be the beginning of the economic equivalent of the cold war.
During the cold war, there was an iron curtain. There were countries who had pledged allegiance to Russia and then there were other countries who had pledged allegiance to the United States.
A so-called iron-curtain used to divide these countries. It is now likely that the tech equivalent of an iron curtain will soon come into being. The effects of this can already be felt. There seems to be a race to see who can move faster up the 5G ladder. Nokia, a Finnish company, has the support of the American government. Hence, it has won 12 contracts and is clearly in the lead now. However, China is catching up as Huawei signed the Russian deal. Therefore, even though Huawei has signed only 3 contracts in the past year, the size of these contracts is considerably larger than the American ones.
The banning of Huawei has created a technological race of sorts. Traditionally, America has been winning this race. The American government is proud of Silicon Valley companies. It also believes that Chinese companies cannot really replicate the success of their American counterparts. This is because these companies are subject to strict government control as opposed to American companies which have a free hand.
However, with the Huawei ban, the situation has reversed. America is now regulating the behaviour of its companies. It is a known fact that Huawei is the undisputed leader when it comes to 5G technology. It is also a known fact that other companies like Nokia will take years to catch up with Huawei.
Hence, this deal between Russia and Huawei is likely to be a game changer. It will end up changing the status quo, wherein America will no longer be at the forefront of technology. Instead, it will be highly likely that America will now be lagging behind in the 4G race. It will be interesting to see how America deals with this situation.
Trade War Intensifies: Huawei was a sore point between America and China. It was a symbiotic relationship. Huawei needed America for increased sales growth. At the same time, America needed Huawei for faster technology adoption.
People were of the opinion that since there is a mutual benefit involved here, both countries would abandon their aggressive stance and finally, the trade war would be resolved. However, that has obviously not happened. Since the warring factions are not co-operating in regards to matters of strategic importance to both of them, it is unlikely they will co-operate in anything else.
The Russia Huawei deal basically signifies that the gloves are off in this trade war. Instead of moving towards co-operation, it is highly likely that both these countries will now move towards more aggression.
Russia and China Collaboration: Both Russia and China are dominant powers themselves. They do not like to be subdued by American hegemony. Just like China, Russia has also been in American crosshairs after they annexed the Ukrainian territory of Crimea.
Russia and China see themselves on the same side since they have a common enemy in the United States. The Huawei deal with the Russian company has only cemented an already existing relationship.
As a part of its Belt and Road Initiative, China has already developed rail and road ties with Russia. Over time, the partnership is likely to become stronger. Maybe China and Russia cannot individually beat America. However, if both these gigantic economies act as one unit, they are likely to give America a run for their money.
The bottom line is that the Huawei ban seems to have backfired for the United States. It has cemented a partnership between two of its strongest rivals. Also, the trade war now seems to have escalated beyond control. Americas reckless and disrespectful approach has driven Huawei into the Russian camp.
Authorship/Referencing - About the Author(s)
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.