Tussle with US over Huawei won’t end well

Gerard Baker

America is in the early stages of an economic cold war with China and Boris Johnson is caught in the crossfire

Everyone loves a good fairytale and Davos, where each January the world’s richest people come to tell each other about their commitment to equality and social justice, is as good a place as anywhere to enjoy the genre.

This year the simple moral fable that held the denizens of the Swiss resort in rapt attention was the story of St Greta and the Great Orange Monster. While Greta Thunberg, the secular child-saint, was castigating the world’s business and political leaders for not committing to carbon neutrality by next Christmas, Donald Trump was performing to a very different script, denouncing “prophets of doom” and hailing the economic nirvana that has already arrived — at least in the United States.

But if the dissonance between the planet-destroying American president and the self-designated saviours of the world was the most public disagreement on display here, it was the continuing economic conflict between the US and China that led most of the discussions in the coffee houses and hotel suites.

For now at least, a truce has been called in the trade war between the two countries, with last week’s announcement of agreement on phase one of negotiations that reduced some tariffs and removed the threat of the imposition of more. US officials insist talks on a phase-two deal that would remove all tariffs and restore peace are already under way but no one is holding their breath.

For genuine peace to break out, the US is looking for China to make the kind of change — the reduction of the role of government in the Chinese economy — that would essentially entail the transformation of the state-directed communism that is core to its political and economic model.

The US objectives remind me a little of the scene from Monty Python’s Life of Brian when the People’s Front of Judea demand that Pontius Pilate dismantle the entire apparatus of the Roman imperialist state in two days or face the consequences.

Even if the Chinese were to prove more responsive than Pilate, the likelihood of a genuine US-China peace deal is remote, as some of the more consequential conversations at Davos indicated.

The US remains in the early stages of a much larger economic cold war with China that centres on technology. The immediate battlefront in that war is the global competition for 5G networks, the latest in communications that will dramatically speed up the ability of business and consumers to download, interact and generally enhance their digital and electronic productivity.

Just about everyone acknowledges that Huawei Technologies, the Chinese company, is the leader in the global competition to build these networks. Huawei is, like all Chinese companies, closely invigilated by the Chinese Communist Party.

In the US view, widely supported by intelligence assessments, Huawei’s accountability to political masters is so great that any network that the company builds is going to be in effect a portal for the Chinese government to spy on the activities of anyone using it. So the US has banned Huawei from doing business in the US and blocked American companies from working with it. But the larger struggle is unfolding over Huawei’s business with other countries, in particular US allies.

A senior American official told me that one of the Trump administration’s main priorities for 2020 is to persuade countries around the world not to use Huawei in building their 5G networks. Critics say this is, in essence, a form of barely disguised protectionism, that the Huawei threat is overstated and that the US is simply trying to impede the commercial success of a rival Chinese company.

To counter that criticism, officials told me, their ideal outcome would be a US-European joint venture that could produce networks just as well as Huawei. But for now that alternative does not exist.

Britain, of course, is in America’s sights, with Boris Johnson’s government set to approve a contract with the Chinese company any day now. Last week there was an explosive meeting in London between senior American and British officials. A top US official said that Sir Mark Sedwill, the cabinet secretary, “erupted” at a senior policymaker from the White House during a heated exchange over Huawei, as No 10 stood firm in defending its pending decision.

The question is how far will the US take its efforts to dissuade its key ally. So far it has said that it would keep the issue separate from the planned negotiations over a post-Brexit trade deal with Britain, but it may not stay that way.

“The UK has a mixed record on Huawei, but we’re working with them. We’re trying to show them different options,” Larry Kudlow, Mr Trump’s economic adviser and an enthusiastic backer of a US trade deal with Britain, said.

When pressed on whether the US might use the trade negotiations to influence the Huawei decision, Mr Kudlow said, enigmatically, not “at this point”.

Much will depend on the judgment of a famously mercurial president. Does he want a trade deal with his friend the prime minister so much that he will look past this skirmish in his larger tech war with China? Or might he decide that the China fight is the bigger priority?

This is one story not guaranteed a happy ending.