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Huawei and ZTE: A Bargaining Chip No More?

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If FCC Chairman Ajit Pai’s scheduling of a vote this week  to bar U.S. companies that receive subsidies from purchasing 5G equipment from Chinese firms like Huawei and ZTE isn’t enough, U.S. Attorney General William Barr’s strongly worded (supportive) letter to Pai on this FCC agenda item may signal greater clarity from the U.S. government on a major national security issue.  

This spring, when the Technology Policy Institute hosted a panel to assess the costs and benefits of a Huawei ban, the White House seemed to be making up its mind on the issue.  President Trump was on TV making the national security case for banning Chinese companies from providing equipment for U.S. (and allies’) 5G wireless networks.

But then came the President’s suggestion the ban could become a bargaining chip in U.S.-China trade talks then heating up.

TPI President Scott Wallsten jumped on this disconnect quicker than a Huawei salesperson on a rural 5G contract. From Sue Halpern in the New Yorker, one of several journalists who interviewed Wallsten for stories on the issue: “If we didn’t have these other trade issues with China, it would be easier to just accept the [Administration’s] security statements as truth, Scott Wallsten, an economist and the president of the Technology Policy Institute, told me. But when it gets mixed up with all these other trade issues, it makes it a little more suspect.”

Barr’s letter to the FCC moved the Administration more firmly into the exclusion-for-national-security-reasons camp, saying Chinese firms are too risky to be part of U.S. 5G networks.

DOJ “supports…the proposed prohibition of the use of USF funds for companies like Huawei and ZTE and the launch of a process to remove and replace such equipment,” writes the AG. “At this critical moment, while the world decides where to place its trust, we should not signal that Huawei and ZTE are anything other than a threat to our security.”

Not to quibble with Barr’s letter, but some economists would say the AG also engages in some shaky economic thinking when he argues that banning Huawei and ZTE would be good for competition.  And nobody has yet estimated how much this ban will cost taxpayers. But the FCC has much bigger fish to fry on this issue.

The Huawei-5G issue is tough.  One of our challenges, of course, is knowing for sure (without a top security clearance) the truth and severity of the ability of the Chinese government to use 5G networks as tools to its ends through equipment from Chinese firms. But plenty of people in a position to know something are worried. 

This issue is bigger than 5G and these two companies. It requires evaluating threats, uncertainties, and even benefits that economics has not yet tackled. As Barr suggests, the FCC must grapple with the nature of regimes and their legal systems. Watch the FCC Open Meeting this Friday at 10:30 a.m. for a full and important agenda.

FCC Open Meetings are streamed live at www.fcc.gov/live and can be followed at #OpenMtgFCC.