(What’s Left of) Our Economy: How a U.S.-China Huawei Tech Disaster Unfolded

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5G, antitrust, AT&T, Bell Labs, China, espionage, Huawei, Lucent, national security, networking, offshoring, privacy, semiconductors, surveillance, tech transfer, technology, telecommunications, {What's Left of) Our Economy

It’s hard to think of a worse mess that Washington has gotten the country into than the loss of global leadership in advanced telecommunications knowhow to China. With the world on the cusp of a transition into the so-called 5G standard, the United States boasts exactly zero companies capable of creating complete networks based on this technology, which will increase by orders of magnitude the speed with which individuals, organizations of all kinds, and governments can send and receive digital information, and thereby bring much closer all kinds of game-changing breakthroughs. In particular, 5G can enable the creation of truly “smart” electronic networks that will greatly boost the efficiency of public transportation and energy infrastructure, healthcare, manufacturing, and so much more. (Here’s a good primer.)

Even worse, the world’s pace-setter in terms of both quality and price is Huawei, and Chinese entity with unusually close ties with China’s dictatorial and belligerent government.  Moreover, its lead over its other two 5G competitors (Finland’s Nokia and Sweden’s Ericsson) is enormous. Huawei’s dominance matters a lot because the advent of an effectively networked world also means the advent of a world in which hacking becomes much more dangerous – and the power to hack will translate into decisive strategic and economic leverage. Just think of the possibilities of national security and economic spying alone, let alone the implications for everyone’s privacy. And because of Huawei’s 5G leadership, Beijing holds entirely too many of these cards.

All is by no means lost yet. In particular, Huawei and other Chinese technology entities still rely heavily on U.S.-based companies for state-of-the-art parts and components – especially semiconductors – along with software. But thanks to 5G’s vast potential alone, Americans can’t assume that, before too long, China won’t be able to use it to cut into their lead in these information technology manufacturing and services sectors.

So how did this dangerous U.S. failure come about? When I first briefly answered this question posed by a Twitter follower, I emphasized the U.S.’ reckless pre-Trump administration China policies. These both greatly incentivized Americans businesses to offshore production and jobs to the People’s Republic even in the advanced manufacturing sectors in the public was assured the United States would always maintain matchless superiority, and turned a blind eye to China’s practice of extorting cutting edge knowhow from these U.S.-based firms in exchange for access to China’s huge and potentially huge-er market.

But as the author of an article last year focusing on the weird – and arguably perverse – relationship between recent American trade policies like these, and recent American antitrust policies, I was especially grateful to this Financial Times article for reminding me that the latter helped create this disaster as well.

Here are the key passages explaining the lack of a US telecom equipment manufacturer capable of producing the full-range of 5G kit:

“To understand how this came about, it is necessary to go back to the mid-1990s when the US passed a Telecommunications Act that weakened US champions such as Lucent Technologies by enticing a flurry of new entrants into the market. With its profit margins under pressure at home, Lucent targeted sales in a fast-growing Chinese market to prop up a flagging share price.

“But Chinese authorities insisted that all foreign equipment makers would — as the price of admission — be obliged to hand over technology and knowhow to state research labs and business partners. One by one, the chief executives of the largest telecoms equipment companies trooped through Beijing in the early 2000s pledging to localise their technologies and production bases.”

Neither American Presidents nor Congresses displayed any serious interest in the consequences. Yet submitting to China’s blackmail failed even to save Lucent. In 2006, it found itself in desperate straits, “and was sold to a French rival, leaving North America without a heavyweight telecoms equipment player. The company that was once the technology champion behind Bell Labs is now part of Finland’s Nokia.”

My trade/antitrust article focused on the bizarre situation that had prevailed in the pre-Trump decades, during which the U.S. leaders from both major parties seemed hell-bent on maximizing the competition faced by U.S.-based businesses from foreign economies (via offshoring-friendly and similar one-way trade deals and policies) even as they seemed equally determined to reduce the domestic competition faced by U.S.-based businesses by greatly weakening antitrust enforcement.

The Financial Times article shows that exceptions periodically appeared to this indulgent antitrust policy. But more troubling, it indicates that no national security or even global economic competitiveness considerations (and of course the two are closely related) ever significantly affected antitrust policy. That’s an indictment just as serious as simple neglect or actual encouragement of ever greater levels of corporate concentration.

It’s important to point out, moreover, that this telecommunications disaster’s roots run much deeper. Specifically, the federal government began back in 1949 to pressure AT&T’s ancestor Bell Telephone, which had dominated American telecommunications from its 19th century beginnings, to divest it manufacturing and research and development activities on the one hand from its services activities. And this even though that research arm, Bell Labs, invented the world’s first semiconductor device – the transistor.

First AT&T and then Lucent made plenty of their own mistakes, too. It’s a really complicated story, though, and two good short accounts can be found here and here. Nonetheless, clearly the voices in Washington during these decades that might have been encouraging a more comprehensive strategy to preserve U.S. dominance – or even competitiveness – in this crucial technology were way too weak. And now, for the near-term future in any event, the nation is dependent for this knowhow on a distant regime whose benign intentions can by no means be assumed.

Our So-Called Foreign Policy: Preliminary Thoughts About and Lessons of Paris

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2016 elections, Al Qaeda, border security, borders, Charlie Hebdo, civil liberties, Constitution, Donald Trump, France, Immigration, intelligence, ISIS, jihadism, Middle East, migrants, Mumbai attack, Obama, Our So-Called Foreign Policy, Paris, Paris attacks, radical Islam, refugees, Robert Jackson, September 11, surveillance, terrorism

Because barely a day has passed since the news first broke of the horrific terrorist attacks in Paris, caution is in order about commenting, especially about the identity of the attackers, and other crucial details of the strikes. Nonetheless, some observations can reasonably and usefully be drawn, and some important implications, including for a range of security and economic policies, can be identified.

> Except for the innocent victims and their families and friends, the Paris attacks weren’t a “tragedy,” as so many good-hearted folks have mistakenly supposed. Whether the aim is intentional or not, that term drains the event of moral content and inhibits clear thinking. In particular, it weakens the public’s determination to establish and enforce accountability – notably over the longer run, as the temptation grows to return psychologically to normality, along with shoulder-shrugging defeatist impulses. Instead, the attacks were an outrage and an atrocity. Making all efforts to prevent repeats are imperative both for self-defense and to create a better, safer world for future generations.

> Another term we need to excise from news coverage and discussion is “senseless.” The Paris attacks clearly were intended to further a political and policy agenda: sowing chaos among ISIS’ enemies the worldwide, including in the United States, and dissuading governments from joining military efforts against the group in the Middle East, or from continuing or strengthening existing efforts. Indeed, these agendas – which are sadly likely to achieve at least some degree of success – are what justify labeling the Paris attacks as acts of terror. As such, they are utterly incomparable to the kinds of mass shootings in America and elsewhere that are carried out by obviously deranged individuals whose heads are filled with heaven knows what delusional “ideas” with no chance of attracting significant support or even sympathy.

> ISIS has now credibly claimed responsibility, and both the French and U.S. (albeit with some apparent reluctance) governments agree. So there can’t be much doubt that the attacks represent the latest instance of Islamic terrorism.

> As widely noted, the Paris attacks could well mean that this Islamic terrorist challenge is entering a new phase even more dangerous than experienced so far. Its scale and intensity more closely resembled the 2008 attacks on Mumbai, India, than the more targeted strikes on the Charlie Hebdo staff and on a kosher grocery store in suburban Paris, both in January. Indeed, the City of Light was literally a war zone for several hours, as both the French military and police were called into battle.

> There’s no reason to think that ISIS – and similar groups – will stop, even for the time being, with Paris. No one should rule out equally deadly follow-on strikes elsewhere in Europe, and – though less likely due to geography – the United States.

> Mumbai, of course, was all too easy for Westerners to ignore, even though many of the victims were Westerners. But because so many were not, and because it took place in a very far away developing country that’s typically dismissed as violence-prone, it hardly amounts to wallowing in liberal guilt to acknowledge that Mumbai’s impact in Europe and North America was orders of magnitude weaker than mass killings in one of the former’s crown jewels.

> Meaning no disrespect to all the dedicated individuals in intelligence and security agencies in France, and all over Europe, but if only because attacks like those in Paris require so many accomplices and so much on-the-scene planning and related activity, it’s clear that anti-terror strategies need to be dramatically improved. For example, it’s already been confirmed that one of the attackers was a French national who had been on a French government terrorism watch list since 2010. No doubt other lapses will be revealed going forward.

> Similarly, there can’t be any reasonable doubt that border security policies in Europe and the United States will need to be strengthened. Near the body of one dead attacker at the Stade de France was found a Syrian passport showing that holder had been admitted as a refugee into Greece in early October. It’s not certain that the passport actually belonged to the attacker – as opposed to a victim – although at least one report says the document was found on the attacker’s person. Further, another report has appeared of a second such passport. And another passport found in the vicinity reportedly comes from Egypt.

Although some analysts believe these documents to be counterfeit, and carried by the attackers to boost European opposition to admitting large numbers of Middle East refugees, properly screening these migrants is clearly a major challenge because terrorist infiltrators could easily exploit the chaos surrounding many entry points. And once in a country belonging to Europe’s visa-free zone (and Greece is one of these), visitors are free to travel passport-free among 25 others (including France).

It’s also important to note that America’s own borders, especially with Mexico, aren’t exactly hermetically sealed, and that serious mistakes by its own immigration authorities made the September 11, 2001 attacks that much easier to carry out. Indeed, six of the 19 September 11 hijackers had violated various American immigration laws, but were still in the country, including two who had overstayed their visas. As a result, supporters of lenient U.S. and European immigration and refugee policies clearly don’t want to hear this, but tighter restrictions are nothing less than essential.

> In this vein, these policies are bound to become far more controversial throughout the West, and it’s hard to imagine that supporters of stronger immigration controls – especially Republican presidential hopeful Donald Trump – won’t benefit politically.

> Further, since many Islamic terrorists are nationals of victim countries, more aggressive surveillance and related counter-measures are simply unavoidable. For all the vital importance of preserving civil liberties, their preservation, as always, needs to be balanced against national security considerations that clearly have again grown in importance. No freedoms are ever absolute, and in times of emergency like this, it’s crucial to remember Supreme Court Justice Robert Jackson’s warning in a 1949 dissent that “if the Court does not temper its doctrinaire logic with a little practical wisdom, it will convert the constitutional Bill of Rights into a suicide pact.”

> Calls for escalating the West’s military operations against ISIS have naturally proliferated over the last 24 hours, but the goal of decisively defeating this terrorist group is no more realistic than it was before the Paris attacks. As made clear by the decisive defeat of Al Qaeda following 9/11, the Middle East remains so terminally ill on so many fronts that it will remain a breeding ground for terrorism for the foreseeable future. And since, as I have written repeatedly, America’s allies in the region are too internally weak to “step up” and provide meaningful assistance to a coalition dominated by non-Muslim outsiders, the nation’s best hope for greater security is focusing on what it can plausibly hope to control – access to its own territory.