In a recent Real Clear Markets column, economist John Tamny made the case that Oren Cass’s policy advice is backwards and will result in political doom for, in Tamny’s words, “the hyper emotional Marco Rubio.”
The personal invectives against Cass and Rubio (of which there are several) aside, this sentence in Tamny’s piece caught me off guard:
“Indeed, if Huawei can help Americans reach a 5G future sooner than American companies can, why should we care?”
In making his case that the best trade economy has no political considerations (seemingly ignoring the many we already have, and the ones that other countries do, too), Tamny argues that the Chinese telecom company Huawei, with whom the US is locked in an intractable battle for 5G wireless dominance, is the best option for America if the Chinese can do it better.
In a world where maximalist market outcomes are the only concern, this is probably right. (Though it ignores the fact that international competition with Huawei is on uneven footing, as Huawei is financed by the Chinese state to the tune of billions of dollars. In addition to amplifying its capacity, this state backing also means it can more easily expand by offering its clients favorable financing.)
But in the real world, maximalist market outcomes are not the only concern — and, in fact, other concerns are very real indeed.
Yes, we should care about Huawei
Huawei, which is closely linked to the Chinese Communist Party (CCP), has long been suspected by the U.S. and other western governments of building espionage infrastructure with a single goal: to undermine foreign competition by stealing trade secrets, intellectual property, and political intelligence, all while compromising the global 5G network.
The threat is especially real because 5G is a winner-take-all sector. Control of the infrastructure equals control of the data — data that will both drive the emerging global economy, and prove vital to an effective national defense.
To that end, six heads of U.S. intelligence agencies have already warned U.S. consumers not to purchase Huawei phones due to security concerns. The sale of Huawei phones and technology is already banned on U.S. military installations around the world.
When UK Prime Minister Boris Johnson decided to allow Huawei into Britain’s future 5G network, he did so against the lobbying of the Five Eyes intelligence alliance (which includes the U.S., Australia, New Zealand, and Canada), who argued that threats from Huawei and its links to the CCP cannot be mitigated. Australia, in particular, banned Huawei on national security grounds back in 2017.
Canada, for its part, got embroiled in China’s “kidnap diplomacy” recently when Ottawa supported the extradition from Canada to the U.S. of Huawei’s chief financial officer Meng Wanzhou, who was arraigned for the company’s violation of sanctions against Iran. In retaliation, Beijing accused two Canadian officials of espionage and detained them.
The incident validated how closely the CCP guards Huawei as a strategic government asset. “It’s simply not reasonable to expect that Huawei would refuse a direction from the Chinese Communist Party,” said Simeon Gilding, formerly one of Australia’s spy chiefs.
It turns out that there are actually quite a few reasons we should care about Huawei — chief among them, the protection of our intellectual property, business edge, and political secrets.
In practice, market freedom can mean more than the most efficient outcome
This debate is a proxy for the larger question about what market freedom really means. Theory tells us that we should defer to the most efficient 5G builder. But what does it mean when yielding to the most market efficient outcome also means selling out your own security, and the trade secrets of your own nation’s companies?
My point is not to disparage legitimate concerns about keeping the American markets free of top-heavy market planning, but rather to point out that economic reality forces departures from a theory which states that maximizing imports is unquestionably the highest good, and insists that a globally integrated economy will never create problems.
Imports and global integration have upsides. They also have downsides — ones that this COVID19 pandemic and a rapidly shifting global order are revealing.
Economic motivations do not always trump national ones. 80 export bans around the world — and a turning inward of countries for critical resources — are a case in point. So is the fact that taking the most efficient path to 5G, while it might make the most theoretical sense, would also have serious consequences for the country.
So, really, the question of engaging with Huawei distills down to what should be prioritized: maximal market efficiency, even if it compromises our security (not to mention our own industries)? Or the security of the state and a reliance on American innovation in this winner-take-all sector?
An intellectually honest discussion would fully consider both.