Who Was Hurt the Most by the HUAWEI Ban?
Maybe In history, we saw one of the rarest examples of banning technology with Trump. “Boycotting Chinese Firms” launched by the United States and its allies had generally targeted Huawei.
In similar cases, a political analysis should be run as well as an economic analysis, but since I am an economist, I prefer to stay on the technical lane today. A socio-economic and political-economic article on this issue will come at a later date.
Protectionism is a method that countries resort to when their foreign dependence surpasses the tolerance level. Looking back at history, I find it difficult to find any evidence showing that protectionism has helped the economy in any way. Even the philosophers who have greatly influenced economic history encouraged humanity to embrace and promote international cooperation and collaboration. Today, the largest exporters in the world are China and the US, but they are also the top two importers. While the US exports a wide range of products and technology to the world, thousands of Western companies have manufacturing bases in China. In fact, US companies sell more than half of what they produce in China to the US. The reason why they choose China is not only about cheap labour, besides, the Chinese are no longer associated with cheap labour, so, it is also about “the right work environment”.
Trump’s campaign against China and the fact that he chose Huawei a convenient scapegoat did not have any practical advantage. Just like the actions of all leaders before him, who waged war against technology and wanted to go back to old times, Trump’s actions too led to major consequences that inflicted suffering both upon his country and his allies, a Pyrrhic victory, if you will.
According to Reuters, BT, Britain’s largest mobile and broadband company, sacrificed nearly 500 million pounds to remove Huawei’s equipment from its EE mobile network. Similarly, Vodafone threw 200 million euros out the window, while Deutsche Telekom might have to spend billions to replace Huawei antennas. As for the US government, it thought that it would get rid of Huawei equipment by allocating $1.9 billion from the budget, however, this whole swap cost it 5.6 billion, a price greater than $5.3 billion, which the US Congress later revised.
Canadian PM Trudeau, who has been constantly disturbed by the actions of Trump, could not stand the pressure and joined the anti-Chinese campaign. Instructing the operators to remove telecommunications equipment made by China’s Huawei Technologies, Trudeau was reluctant to contribute to cover the cost of around 1 Billion Canadian Dollars to remove the gear. So, European telecom operators in Canada sued the government. The issue still remains unresolved. I do not want to once again go into this whole unfair treatment of the chief financial officer of Huawei, but it will forever remain imprinted in our memories as a sad-comic story.
Competition drives people to do better. Technology, on the other hand, helps reduce production costs, allowing producers to sell their goods and services at more reasonable prices. But, when the competition gets disrupted, the economy falls into a spiral of inflation and continuously struggles to get out of it. The Huawei ban caused Europeans to get suddenly exposed to a price increase of 30 billion euros in every imaginable industry and domain, such as agriculture, mining, aviation, arts, or sports, which are now cut off from the advantages of unlimited and low-cost 5G. Here are the estimated amounts some countries have to spend each year in the absence of Huawei in their 5G deployment: Germany 479 million euros, France 447 million euros, United Kingdom 374 million euros, Spain 292 million euros.
“Once Again, It’s the People Who Pay the Price.”
As a result of the ban, the previously proposed €16 billion EU space programme has now increased to €30 billion. A major cost increase indeed. Obviously now the people will have to pay for this through taxes and other means. Telecom operators and internet service providers will burden the citizens of the EU with increasing costs. While the world is suffering from inflation, people will have to pay more for communication, which is among the most basic rights of human beings today. Analysts say that removing Chinese infrastructure made the 5G infrastructure in Europe $55B more expensive and delayed it by one and a half years.
Based on the observations I made throughout my travels, I could say that the 5G investments are being postponed one by one due to soaring costs. Since people would not want to pay money for an expensive yet inadequate service, operators and providers will suspend their investments in 5G connectivity. This big delay in building and deploying 5G technology will cause developed countries to fall behind in the technology and space race.
To top it all off, these countries will suffer serious GDP losses. The United Kingdom, for example, is estimated to lose 4.5 to 6.8 billion pounds of GDP due to the delay of 5G deployment, while GDP in France is expected to decline by 7.3 billion dollars for the same reason. Unfortunately, in the fight to eliminate Huawei, they all unwittingly hurt their own interests.
But, when the ban was imposed on Chinese technology, did the cyber-attacks stop? No, they did not. In 2021, five billion attacks took place in Europe, with an increase of 495% compared to the previous year. The decisions of the former president of the United States caused the US Semiconductor Industry to suffer a loss of seven billion dollars. The market values of US companies working with Huawei have also decreased because of this irrational campaign, making their investors lose money.
So how much has Huawei been affected by this campaign? Considering the last four years ago, the Chinese telecom equipment maker seems to be hardly affected by it. There was a significant decline in sales in the first year of the ban, but not in its market share. Having chosen to run instead of stopping, the company continued to innovate with new products, services and solutions by allocating first 15.3% then 25.1% of its annual profit to R&D investments. Today, Huawei combines digital power with automation in cloud solutions, while strongly holding to its market share despite all obstacles. In fact, two new smart devices were recently released into the digital market by Huawei.
China had put forward a high-tech strategic autonomy as early as 2006. However, we can see that prior to the US sanctions on Huawei in 2019, the progress of this strategy at the commercial level was not very resolute. After all, in the past, China did not need to invest heavily in research and development as it could enjoy better high-tech products from the United States. The US sanctions on Huawei sounded an alarm for the Chinese government and businesses, making it not only necessary but also urgent to invest in advanced technology and processes. Ironically, the US sanctions turned an indecisive vision into a critical task, greatly accelerating the intensity and pace of investment from all aspects, and achieving breakthroughs is only a matter of time.
As for Turkey, it is not easy to install a 5G network infrastructure in a country with mountains higher than Mont Blanc that run from the west to the east. Since Turkey managed its alliance with the United States in a rational manner, it didn’t have to suspend its trade relations with Russia and China. Considering Huawei’s previous success in 5G network installation in rough geographies, the Chinese tech giant seems like the most suitable “solution” for Turkey. Huawei has a lab and a training centre in Istanbul where university students are encouraged to get certification and develop practical skills for the ICT industry. I must say that I have visited their facility many times and was amazed by the dynamism there.
The top item among Turkey’s imports from China is communication equipment, unsurprisingly followed by phones and electrical devices, while industrial machinery and devices occupy the third spot, all of them totalling to billions of dollars. But it should be noted that Turkey also sells items to China in the same category. There is an established cooperation between the two countries. Obviously, China runs a strong trade surplus against Turkey. However, not intimidated by this giant surplus, Turkish companies chose not to participate in the witch hunt initiated by the US. Turkey needs at least 2 million km of fibre optic network and microwave technologies to switch to 5G. Due to frequent earthquakes, almost every city in the country, particularly Istanbul with millions of habitants, needs to be transformed into “smart cities”. So, Turkey does not have the luxury of cutting ties with companies like Huawei. I believe that Turkish diplomacy is managed in a very pragmatic way in line with the country’s needs.
Let me also remind you that Turkey’s total R&D investments are only one-third of Huawei’s, which means that, despite Trump’s pressure, Turkey made a decision being aware of its own realities. In Turkey, Huawei is not considered a mere mobile phone brand, but rather a technological solution partner.
Making tough decisions in consultation with friends, colleagues, shareholders can help you get through difficult times. If you have read my previous articles about Huawei’s management style, I’m sure you can understand what I mean. The final part is available on the link below.