America worries that Huawei, China's telecoms giant, spies on behalf of its government and threatens Western interests. Such concerns are not just about America's security, but also its insecurity. Read more here: https://econ.st/2O9kgyc

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Rarely does a country go to war with a private company. But America has done just that. But is this really about Huawei or is it something bigger than that? And what is the threat?

What is this war really about and why is Huawei in the middle of it?

Founded in China in 1987 Huawei is now the world’s largest maker of telecoms equipment with revenues exceeding $103bn. When you think about Huawei you might think about the handset. That makes sense, since it sold 200m of them in 2018 alone. But close to half of its revenue comes from selling network equipment. In fact, since 2014 it’s outgrown all its competitors reaching over 3bn people.

This is how networks function - Your phone sends a signal to a nearby tower using radio waves, voice and data are passed over an internal network run by your phone company, which connects your handset to other phone users and the wider internet. In other words, these antennas connect us all. But now, there’s a new kind of network. Although 5G is massively overhyped, it is coming and Huawei is a leading force in this innovation. But though this computerised, smart future opens up new possibilities it comes with a health warning. Because if entire networks are vulnerable this opens the door to countries spying on one another.

In a rare interview with The Economist Ren Zhengfei, Huawei’s founder and CEO, talked about the political storm surrounding his company. As the argument rages over the security of Huawei’s products the effects can be seen in some unexpected places. Joe Franell runs Eastern Oregon Telecom, a small network serving the people of this rural area. The problem is that the network here relies on Huawei technology.

It’s a similar story around the world Mobile-phone users in developing countries have benefited from Huawei’s attractive deals. But how is Huawei undercutting its competitors?

Whether or how Huawei is connected to and subsidised by the Chinese government is unclear. But what is clear is this - China is the kind of country where if the party says jump all you can say is, well how high? Loyalty to the state is actually enshrined in China’s intelligence law
Article 7, a 2017 addition, states that “Any organisation or citizen shall support, assist and co-operate with the state intelligence work.” Critics say this law means that when you buy Huawei equipment you may be exposing yourself to surveillance by the Chinese intelligence services. And this makes governments very uncomfortable.

The fear is that Huawei will leave backdoor vulnerabilities in its networks that would provide China with an opportunity to spy on its competitors and enemies. To counter this mistrust, Huawei has shared its code and allowed the likes of Britain’s National Cyber Security Centre
to scan it for backdoors. So, if there’s no solid security threat why is America making an enemy out of Huawei?

It seems as though the concern over Huawei is not only about America’s security but also its insecurity. And it’s causing collateral damage at home as well as abroad. In May 2019 the Trump administration issued an executive order which not only forbade American companies from supplying Huawei with components, but restricted domestic networks from using its equipment. It’s a move that feels like an own goal to Americans like Joe Franell.

And there’s another uncomfortable truth that America can’t ignore. Smartphone technology relies on a truly global supply chain. Take an average smartphone. Some contain components from more than 200 international suppliers. Screens might be made by Samsung in South Korea. The camera lens engineered in Germany. The chip could be designed by a California-based company and manufactured in Taiwan. The battery could come from Japan and the audio chip from China. But increasingly, hostility and lack of trust threaten to fracture these supply chains.

America's concerns about Huawei are understandable. But the risks can be managed by limiting the use of Huawei equipment to less sensitive parts of 5G networks. That way it is possible to benefit from the low cost of Huawei’s equipment while minimising security concerns.

Billions of people around the world have benefited from increased connectivity made possible by global standards and global supply chains. But if political mistrust divides the telecoms industry into rival camps
everybody stands to lose

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