The confrontation between two major powers – the U.S. and China – over next generation technology is intensifying. U.S. President Donald Trump signed an executive order banning U.S. companies from procuring telecommunication equipment from foreign companies that pose a security threat. The president signed the order apparently with Chinese telecom giant Huawei in mind.
In addition, the U.S. Department of Commerce added Huawei to a list of restricted companies called the “Entity List” and announced that exports to it from the U.S. would be banned.
Huawei leads in next generation mobile networks (5G). If the company can’t procure key parts including semiconductors manufactured in the U.S., the company will receive a serious blow. We need to keep an eye on how the situation develops including China’s countermeasures.
The reasons for the U.S. to take such a high-handed measure is that Washington aims to contain China in the two countries’ competition for dominance in high technology and to press China to compromise in the U.S.-China trade negotiations. Moreover, the U.S. has a deep-rooted distrust of China’s political and economic systems.
Under China’s legal system, the government can order companies to provide information on national security grounds. Not only state-owned companies but private sector companies as well can’t refuse a government request for information. If products manufactured by such companies penetrate the telecom infrastructure in the U.S., it would pose a serious threat to national security. Washington feels a sense of crisis.
There are differences in degree of seriousness among Japan, European countries, and the U.S. in eliminating Huawei products. European countries are comparatively more tolerant than the U.S. By taking a stringent measure this time, Washington apparently aims to put pressure on allies to have them keep in line with the U.S.
However, we are concerned about the potential impact of this strict measure on the economy. Huawei is a major customer of American companies including Qualcomm Incorporated and Microsoft Corporation. Suspending business with Huawei would cause great damage to those companies.
This strict measure by the U.S. is not irrelevant to Japan. Huawei procures electronic parts worth $6.6 billion a year from Sony Corporation and Murata Manufacturing Company. Not all of these parts will be immediately banned. However, in case U.S.-manufactured equipment technology or parts are used in export goods, a transaction may be prohibited. If the involved companies are found to be in violation of the executive order, they might be subject to sanctions by the U.S. The executive order will make companies around the world nervous about doing business with Huawei and may cause serious disruptions to the global supply chain.
This will also seriously impede innovation in the long run. The elimination of Huawei will delay the development of 5G networks, which will delay the next generation services including automatic driving and telediagnosis. The new Cold War between the U.S. and China over high technology with no end in sight poses a great risk to the global economy.