Huawei: Staring into the Abyss

Huawei is putting on a brave face. The Chinese networking equipment giant, banned from acquiring US technology last month over alleged violations of international sanctions against Iran, last week claimed it had assigned 10,000 engineers to work around the clock to find ways to break its reliance on American code and computer chips.

Spoiler: It's not going to work. If the US ban stays in place, today's Huawei won't survive.

Here's why:

Technology: To make its phones and networking gear work, Huawei needs semiconductors. To make those semiconductors, Huawei relies on software tools that are built by only a handful of US and European companies, which have suspended doing business with Huawei to comply with the US ban. Without access to these tools, or the software updates needed to keep them running, Huawei can't make viable products, and its business will collapse. It's as simple as that.

Politics: Huawei could try to seek a settlement. If Huawei were to admit guilt over the violation of Iran sanctions, fire some executives, and submit to US inspections to allay espionage fears, as it's already done in the UK, Washington might be willing to deal. But Huawei is China's most important and innovative tech giant. Kowtowing to the US would be humiliating both for company, the country, and in particular Chinese President Xi Jinping. There is no sign yet that Huawei or China are willing to go down that path.

But what about all those other countries that have signed deals with Huawei? Governments from Brasilia to Moscow to Kuala Lumpur have signaled they are sticking by Huawei despite US pressure. Just last week, Huawei signed a 5G deal with a Russian mobile telecom company. But unless the US ban is lifted, Huawei won't be able to deliver much beyond signatures.

What if Trump changes his mind? He's seeking leverage in his broader trade dispute with China, and as we know, he's turned on a dime before. All it would take is a single tweet and presto, Huawei's saved. But even if Trump decided to suspend the technology ban as part of a potential deal, the firm's reputation as a supplier may already be compromised. Telecom companies that are preparing to shell out billions of dollars to build their 5G networks would have to think hard about signing deals with a company that from now on will be squarely in the US crosshairs.

And so Huawei is probably going down. As that fact becomes clearer over the coming days and weeks, it will send shockwaves through both the $1 trillion global telecoms sector and through geopolitics. Don't say we didn't warn you.

Washington Comes for Big Tech: Gradually and then Suddenly

After years of relatively little attention from government regulators at home, the US tech giants are sitting under the anti-trust hammer. Earlier this week, shares of major tech stocks fell sharply after a series of media reports indicated that regulators at the Department of Justice and the Federal Trade Commission were already divvying up responsibility for investigations into Facebook, Google, Apple, and Amazon. The House of Representatives' Judiciary Committee, meanwhile, is readying a "top-to-bottom review of the market power held by giant tech platforms."

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Mueller Speaks: Impeachment Spark, or Double-Negative Legacy?


Special Counsel Robert S. Mueller just gave a brief statement about his report on the Russian government's attempts to influence the 2016 presidential election, and the question of whether President Trump sought to obstruct that inquiry. Here are two takes on what Mr Mueller said.

Robert Mueller's double-negative legacy
by Willis Sparks

With his brief statement this morning, Robert Mueller leaves behind a "double negative" legacy regarding the question of whether President Trump sought to obstruct justice: we didn't have confidence that the president didn't commit a crime.

And so there's something here to disappoint both the president and his detractors.

President Trump can't be happy that Mueller made explicit in this statement that "Charging the president with a crime was not an option we could consider" under Department of Justice policy. That comment will provoke endless speculation that Trump avoided prosecution only because he's president.

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EU Elections: Turning a New Leaf

The results of the EU's parliamentary elections are in, but the work of parsing the 28-member bloc's most important election in decades has only just begun. Here are a couple of themes that emerged from the vote:

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The US-China rivalry is putting innovation at risk – is it worth it?

Back in January, we warned that an intensifying "Tech Cold War" between the US and China over technology and trade could plunge global innovation into a deep freeze as both countries impose fresh restrictions on the free flows of money, people, and information that (throughout history) have powered new ideas.

We're not at the winter solstice of innovation just yet, but the US's move last week to restrict Chinese networking equipment giant Huawei's access to US markets and technology sent an awfully chilly wind through the tech sector.

Here are two ways that a decoupling of the Chinese and American tech sectors could damage innovation in the US:

  • Less good money: Huawei spends roughly $10 billion a year buying hardware and software from US firms. Total Chinese tech industry purchases are many times greater than that. A portion of that money is reinvested by Silicon Valley in R&D; to help develop the next generation of innovative tech products. If Chinese firms can't – or won't – buy from American companies, a lot of R&D; cash will vanish.
  • Fewer good brains: US semiconductor companies are already struggling to hire highly coveted Chinese engineers as the Trump administration slow-rolls their visa applications over national security fears. But top tech talent is hard to come by, and there aren't always qualified workers from the US or other countries available to pick up the slack.

The upshot: The United States has plenty of well-founded grievances with how China runs its economy and its increasingly powerful tech sector. But the costs of Washington's more confrontational approach are already becoming apparent. Those costs will rise further if the US and China's deeply linked tech sectors decouple more fully and formally, as some China hawks in the US hope. At what point do the costs start to outweigh the benefits?

Trump Hits Huawei In the Mouth: How Can That Hit You In the Pocket?

Last week, as trade tensions continued to rise between China and the US, the Trump administration landed one of the heaviest blows yet on Beijing, moving to severely restrict the Chinese tech and telecoms giant Huawei's ability to do business with American firms.

What happened? Two things: The Trump administration formally banned sales of Huawei telecoms equipment in the US. More importantly, it also prohibited American firms from selling their technology to Huawei without a special license.

Why? It's complicated. Technically, Huawei was blacklisted from acquiring US technology due to alleged violations of US sanctions against Iran. But the US is also concerned that Huawei could allow Beijing to spy on or disrupt data flowing across the next-generation 5G data networks of the US or its allies. President Trump may also believe the moves will give him extra leverage in his broader fight with Beijing over trade and technology.

The fallout is already starting to hit. Here's where:

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Playing With (Digital) Fire

As any fan of martial arts knows, one of the best moves is to take an attacker's weapon and turn it back on them. In 2016, that's just what Beijing did – in cyberspace: after American operatives used a particular bit of code to attack Chinese computer systems, Chinese hackers took it, repurposed it, and used it to attack a bunch of US allies, according to The New York Times.

The technical details of the story are fascinating, but it also raises some big political questions:

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The Only Thing That Scares Vladimir Putin (And Many Others)

Today, Brazilians will pour into the streets to vent their anger about something that, in fairness, makes a lot of people's eyes glaze over. But it's the same issue that's roiled politics in Spain, France, and Argentina recently. In Nicaragua last year, it prompted a violent political crisis. And in Russia – well, let's just say there is only one thing Vladimir Putin is truly afraid of and it's…

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