Huawei Situation from a Small Nation Viewpoint

How the US has put China and Huawei to the current situation and how this may affect an independent, small nation and its national defence?

The memorandum reminds of the main events that have taken place in the so-called Huawei case. It provides a context to analyse the situation. The analysis is done both from political and military security viewpoints. Finally, recommendations are made for military action.

1. Escalation of the Huawei Situation this far (16. June 2019)

The first act of the Huawei case started back in 2012 when the US Government discouraged companies from buying Huawei or ZTE equipment since 2012 (although phones were outside of this preference) . 

The second act was launched at January 2018 Consumer Electronics Show; CEO of Huawei announced that it fails to have AT7T to sell its flagship phone Mate10 Plus.

• May 2018, the US DoD banned the sale of Huawei and ZTE phones on US military bases worldwide with the reasoning that “Huawei and ZTE devices may pose an unacceptable risk to Department's personnel, information and mission." 
• July 2018, Australia was the first to say that it will ban the Huawei from 5 G rollout publicly. The reason was being a Chinese company: “It is a Chinese company, and under Communist law, they have to work for their intelligence agencies if requested. There aren't many other companies around the world that have their political committees.” Possibly, the Australian government was following its 2012 decline from Huawei to provide $38 B National Broadband Network project. 
• December 2018, the UK telecommunications operator, British Telecom announces intent on stripping Huawei from their existing 4G network within two years and will not use Huawei in its coming 5G core. Nevertheless, “Huawei remains an important equipment provider outside the core network and a valued innovation partner" of BT. 

Since New Zealand  had banned Huawei from their 5 G rollout on November 2018 and Canada  will most probably follow the line, the Five Eyes Intelligence coalition seem to have concerns in using Huawei equipment in their 5 G core networks.

Then the situation escalated towards the third act:

• January 2019, The US Department of Justice on Monday charged Huawei with theft of trade secrets, wire fraud and obstruction of justice. FBI said that "The charges unsealed today clearly allege that Huawei intentionally conspired to steal the intellectual property of an American company in an attempt to undermine the free and fair global marketplace." 
• February 2019, US starts diplomatic coercion operation in other countries to stop them using Huawei in their future 5 G investments. The reasoning included: "The US advocates for secure telecoms networks and supply chains that are free from suppliers subject to foreign government control or undue influence that poses risks of unauthorized access and malicious cyber activity."  Besides diplomatic means, the US also threatened to stop sharing their intelligence information, if their guidance would be abandoned. 

During the lastest act:

• May 2019, Trump effectively bans Huawei with a national security order. "The executive order prohibits transactions that involve information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary whenever the secretary of commerce determines that a transaction would pose a threat to national security." 
• June 2019, The US Commerce Department later gave Huawei a temporary license until August to let Huawei keep existing networks and issue updates.  Nevertheless, companies like Google, Facebook, Arm and alliances like IEEE have been dropping Huawei from their future cooperation.
• June 2019, Russian telecom agrees to let Huawei develop country’s 5 G network along with a statement of "We both add momentum to strategic cooperation between the two companies in high tech, thus building a foundation for commercial 5G rollouts in Russia in the nearest future."  In fact, in Russia FAPSI runs a separate government network for sensitive information

Meanwhile, Huawei has announced that it will deploy its own, much improved , smartphone operating system, “HongMeng”, later this year to China and provide it internationally 2020 . Furthermore, Huawei is promoting their 5 G forcefully in countries outside of US hegemony to give them an advantage over the western countries in gaining the benefits of 5G. Ren Zhengfei has stated this as “America doesn't represent the world. America only represents a portion of the world." 

There are also signs on the U.S. side that the operation, although started as a security concern, may have been escalated as a part of broader economic confrontation since June 2019 the U.S. Treasury Secretary said that President Donald Trump might ease U.S. restrictions on Huawei if there was progress in the trade row with China - but absent a deal, Washington would maintain tariffs to cut its deficit. 

2. The context for Situation Analysis

2.1 The so-called “Tradewar” or techno-economical confrontation between US and China

There is a profound difference in the way the two confronting nations are investing in the future where 5G , supercomputing  and Artificial Intelligence are considered to be the main accelerators for Gross Domestic Production .  Besides the Defence Industry, the US relies on private sector (Silicon Valley Techno Hub) commercial motivation and venture capital for research and develop the future technologies and competencies (mostly private funding and private companies).  Whereas the Chinese government invests widely (“China is executing a multi-decade plan to transfer technology to increase the size and value-add of its economy.”) into key technology areas within the nation (Globally: most online citizens, highest educated digitalized society) and internationally (2017 $515M). China plans to create a $150Bn industry from artificial intelligence related technology only.  The Chinese are seeking start-ups and innovative SME’s to invest in an early stage company developing advanced technology. Based on US law, foreign investment makes the innovative technology off-limits for purposes of the Defence Department. 

The US seems to have wake up with a fact that they will lose the leader of technology posture in the long-term unless they start holding China back. China depends on high-tech manufacturing and some U.S. origin components to keep up the growth and collect tax revenues. China is investing their tax capital in the critical future technologies that will be foundational for future innovations both for commercial and military applications: artificial intelligence, robotics, autonomous vehicles, augmented and virtual reality, financial technology and gene editing. The US has not used its federal taxes wisely in this competition, but merely compensated its defence industry and military operations abroad. The U.S. government does not have a holistic view of how fast this technology transfer is occurring, the level of Chinese investment in U.S.  technology, or what technologies we should be protecting.

On the surface, there is the fixation with President Trump and his closest advisors of fear of Asian economic raise - Japan 1980s and now China. They fear that Asian economic development declines the US economy. On the other hand, Chinese government may suffer from the feelings from centuries of humiliation by western nations. 

2.2 Next revolution of industry and society enabled by networks and technology 

With the introduction of the smartphone (Nokia 1995), the competition of establishing a platform for all consumables provided in smartphones begun. Apple and Google won the competition bypassing all old mobile phone manufacturers (Nokia, Ericsson, Motorola) and Microsoft, who entered the race too late to gain market leverage from the content.

The 5 G technology introduces a new platform – edge computing. The edge computing will provide access to virtual and augmented reality equipment, Internet of Things, and application market as Apple’s App Store and Google Play did for smartphones and their users. If Huawei gets one teleoperator from each country, it will be enabled to provide new edge services. Some claim that only Huawei and Samsung can manage the whole service chain and therefore rule what applications will be published. Who controls the edge computing platforms, can also access the transaction data generated billions of Internet of Things and devices like augmented reality spectacles.  

The 5 G technology also provides global platform business, finance, the 4th industrial revolution, smart cities, and smart government a significant boost. Therefore, countries are striving to establish 5 G infrastructure to give their economy new areas to explore and increase Gross Domestic Production. 

3. Analysis and Recommendations

The question for the analysis is: Should a small nation that wants to build its knowledge economy and gain a strategic defensive posture through the digitalization of its defence avoid or engage with Huawei manufactured technology? The analyse that follows, is done at three different, but somewhat interrelated levels: Technology, Economy, and Political.

3.1 Technology viewpoint

Analyse:
The 5 G mobile networks will connect the Internet of Things to enable the change in controlling cities, energy grids, population, transportation, supply chains, factories, education, among other things. Therefore, a small nation and its defence forces should start the pilot applications as soon as possible, but possibly delay the full roll-out to make sure that there will not be any technical single-point of failure emerging when transforming the society and its defence. The 5 G technology is by no means an end, but an enabler or way for innovative ways to improve business, governance and military affairs. These innovations occur only by experimenting itself or learn from the lessons gained by other fields or nations. 

Recommendation at a technical level:
In preventing the single technological point of failure, a strategic distribution should be considered. Guiding the national teleoperators and military to use different manufacturers in building the 5 G networks or a combination of network components from several vendors may prevent the situation, where the failure of one technology will crash the whole system. The military has always been aware of downgraded export versions of military gear , enemy exploiting possible weaknesses in armament , and potential backdoors implanted in some of the core commercial communications equipment. 

3.2 Economy viewpoint

Analyse:
The 5 G technology provides a new opportunity for platform business: the edge. The U.S. based companies have captured most of the global 3-4G platforms in social media (Facebook, Google), retail (Amazon) and cloud computing (AWS, Google, Microsoft). Therefore, they also control the data collected from vast global user society and benefit from the analysis of consumer behaviour (Google revenue from Ad’s is almost as much as the total of publishing business in the US ). A new, possibly regionally exploitable opportunity for platform business will give leverage for new ways of business and more nationally earned (tax possibility for governments) revenue. 

Recommendation at the economy level: 
Therefore, it is imperative for a business viewpoint to start experimenting and developing as soon as possible to gain the innovation opportunities and lessons required for new ways of a profitable business. If the Huawei edge technology and their ability to control the whole chain will indicate that they would deny the opportunities of the local economy, then alternative vendors should be sought. It is essential that investment decision also considers the future effects on the economy and not just sub-optimise the time of acquisition of 5 G infrastructure.

3.3 Political viewpoint

Analyse:
If the US and China are continuing the current “Trade War” and escalate it to a “Cold War” based on the zero-sum game as they have done this far, the US will pressure its allied/partnering countries to join their side of a blockade. China will, in this case, enforce their belt and road policy and use both financial and diplomatic ways to coerce nations to their side. The unfortunate confrontation would not benefit small countries but keep them from enjoying the possible accelerated opportunities.
In the other hand, if the parties come to see the win-win possibilities after inflicting their economies enough, then a neutral politics during the crises may appear beneficial in the future. 

Recommendation at the political level:
When pressurised from either party, the political level of a small nation may gain the best outcome by stalling and avoidance rather than drastic choose of side in confrontation. The decision should be made compared to possible benefits of early adaption of the new technology to boost the economy rather than short-term political face-saving.