(Photo: live.staticflickr.com)
First, the US is at risk of developing somewhat of a Galapagos system. This is because it is currently looking to rely extensively on the mmwave, which suffers from inherent problems, the biggest of which is its very short range and susceptibility to attenuation. This cannot be easily addressed, as the US is unlikely to simply change course and refocus on developing sub-6GHz infrastructure, as the bureaucratic processes required for repurposing frequencies needed for sub-6 would take years. This is an especially acute issue for the US, as many frequencies in the sub-6 spectrum are also occupied by the military. As this appears to be a US specific condition, other countries may find it easier to develop sub-6 infrastructure. Furthermore, the costs and time needed for building mmwave country-wide infrastructure are massive, and would have to be borne by carriers, at a time when many if not all service providers in the US are already deeply indebted.
Second, the US is in a particularly tenuous position since it stands to lose the race to Huawei, and therefore vicariously to China. Seemingly learning from the 3G rollout fiasco, China has focused extensively on developing 5G technology, with central government instituting a broad stroke effort which in turn enabled the cooperation of private commercial entities such as Huawei and ZTE, carriers, as well as public and military research institutes. Altogether, over the last couple of years, China has invested more than $180 billion into 5G R&D alone. Huawei itself claims it spends approximately $20 billion for R&D yearly – double the amount of Nokia and Ericsson’s combined R&D budget. Moreover, China has also ensured that these private entities do not simply focus on maximising monetary gain and use existing technology patented by foreign entities; instead, they have pressured manufacturers to develop the majority of the technology domestically – even at the cost of increased R&D expenditure and time. As a result, Chinese entities hold approximately 34% of all standard essential patterns relevant to 5G (standard essential patterns are those that have to be used in devices that comply with technical standards). Among 11 companies holding more than 100 SEPs, four are from China, with Huawei leading the pack with approximately 1500 SEP patents, ahead of Samsung, Nokia and Ericsson. Qualcomm, the highest ranked US entity, is sixth, with approximately half the number of Huawei’s patents. It should be noted however that Huawei’s and Qualcomm’s patent portfolios are not necessarily 1-to-1 equivalents, with at least some of Chinese company’s IPs being “defensive” (protecting from IP theft, and avoiding patent litigation), rather than being meant to gain revenue from, which is what Qualcomm is doing. At the same time, Qualcomm’s narrow specialization (relative to Huawei) means that its products (including IP’s) will be but an element of 5G networks, while Huawei could feasibly develop an entire end-to-end infrastructure (core, radio and antennas), as well as provide network switches, enterprise objects (routers, modems and so forth) and mobile phones to boot, while raking in additional profit from IP royalties – and can do it faster than anybody else, for 20%-30% less cost. The US often leverages an argument that China has only been able to soar in the way it does because of unfair business practices, such as central government compelling private entities to coordinate their efforts, forced technology transfer and industrial espionage. This is undoubtedly true; a stunning rise in the prominence of Chinese hi tech industry is at least in part due to top down planning such as the Made in China 2025 program, a blueprint meant to transform the Chinese economy from a labor intensive manufacturing economy into an economically self-sufficient and technologically advanced economic power house focused to a far greater extent on domestic consumption rather than exports. Instances of forced technology transfer are well documented as well, as are less than legal ways of obtaining high tech that many Chinese companies, Huawei included, are guilty of. At the same time while all of the above may well be true, China simply did not steal the 5G technology from anyone, and certainly not from the US.
Consequently, the US has reverted to trying to block Huawei’s expansion by utilising a mixture of domestic and international policies aimed at undermining its position. These have included issuing a call to arms of sorts earlier this year, when the US administration began pressuring a number of countries to ban Huawei equipment from any present and future 5G deployments. The list of countries that were pressured by the US to exclude Huawei is extensive (from Germany, Poland, Italy, Philippines and Japan to the Five Eyes countries of the UK, Australia, Canada, and New Zealand), but the list of countries that actually complied is not; as of today, only Australia and Japan did ban Huawei equipment from their networks. As of September 2019 it might appear that Poland is now joining their ranks with the “Joint declaration on 5G” signed during vice President Pence’s visit to Warsaw, which is clearly aimed at Huawei, albeit without mentioning it by name. Whether the declaration will prove to be more than just that remains to be seen. This may be especially worrisome for the US since it has raised the prospect of limiting intelligence sharing, due to the security risks associated with Huawei equipment, which could potentially be used – through backdoors – for espionage. Frankly, it is a valid concern – while no one has been able to conclusively prove that such backdoors exists, given the chance any rationally acting actor on the international stage would at least consider exploiting such opportunities. Moreover, laws enacted by China, such as the 2017 National Intelligence Law, which obligates tech companies to cooperate with central government further exacerbate US concerns. The close links between Huawei and the People’s Liberation Army also do little to dissipate this sentiment, while the ubiquitous nature of 5G networks, and the likelihood of their employment in military communications only adds to those concerns. At the same time, the US really should not be casting the first stone here – it too has been caught red-handed engaging in some questionable data gathering schemes.
This lukewarm response is not only due to the fact that the US seemingly applies all the sticks, but cannot really offer any carrots; nor is it solely because Huawei’s 5G equipment is ahead of its competition – another fundamental reason is purely economic; because 5G, especially in early stages of its deployment will likely be built on top of already existing 4G infrastructure (which is increasingly based upon Huawei products), backwards compatibility is bound to become a problem, as parts of the existing 4G infrastructure (such as antennas) would also have to be replaced, should Huawei be banned from participating in 5G contracts.
The Restricted entities list consists of 68 Huawei affiliated companies; 38 of which are located in China, while the rest is scattered around the world (on August 19 another 46 Huawei affiliated companies have been further added to the list). That in turn means that once the 90 day moratorium ends (which too was prolonged in August), any and all US companies are forbidden from engaging in business with Huawei – a major blow to the company, as it means that any and all business links with for example Google (not only the owner of Android, the OS utilized by all Huawei devices, but also a provider of essential apps, from Gmail to Google Maps). Even though the ban will only apply to devices that will be sold in future and outside of China (where Google is blocked by the Chinese government anyhow) this still constitutes a major blow for Huawei, especially coupled with other key software and hardware vendors that have since ceased their cooperation with the company, from various countries around the world.
This governmental involvement is best exemplified by the recent DOJ reaction to an FTC ruling regarding Qualcomm’s alleged abuse of market position. Long story short, FTC’s quarrel with Qualcomm began five years ago, when the commission accused the tech producer of utilizing unfair business practices aimed at suppressing competition, and exerting its quasi monopolistic power to drive up licensing fees. The FTC case itself was a byproduct of Apple’s lawsuit against Qualcomm, whence it accused Qualcomm of driving up the prices of IP royalties. While the Apple–Qualcomm situation was resolved in April (in a somewhat unusual fashion, with both sides announcing settlement in the middle of the trial’s opening statements), the subsequent FTC ruling stated that Qualcomm indeed abused its dominant position in the market. In response, the DOJ issued a statement criticizing the FTC ruling, which stated that “there is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G”and that “immediate implementation of the remedy could put our nation’s security at risk, potentially undermining US leadership in 5G technology and standard-setting, which is vital to military readiness and other critical national interests”. Apparently those types of statements coming from the DOJ are unusual – but all is fair in love and trade war.
Simultaneously, China and Huawei are beginning to pursue what could be described as autarky in its production process; this is best visible against the backdrop of Huawei’s decision to start using its indigenous OS instead of Android, and double down on its efforts to develop a domestic semiconductor industry that could be comparable to western competition. Semiconductor design and manufacturing appears to be an Achilles heel of sorts for China; even though it too was a fundamental part of the Made in China 2025 program, China still imports over 70% (worth $260 billion in 2017, more than oil imports) of all semiconductors that are later used in its electronic devices.
While it is clearly too early to claim that the all-round US technological edge is – or has – eroded (and the semiconductor industry attests to that), it is also very clear that China is closing the gap, especially in relation to all disruptive technologies – from 5G, AI, quantum computing and gene editing to hypersonic missiles – the latter being potentially the most dangerous since it has the potential to dramatically upset the calculations of both China and the US with regards to any kinetic conflict within the confines of the First Island Chain.
For the reasons mentioned above, losing that particular battle will hurt the US tremendously – not only because of the transformative industrial, social and economic potential of 5G, but also because of who it is losing to. Such a loss would have hurt the US with 4G in the late 2000s – but the situation today is far graver. In the 2000s with 3G, the US could perhaps afford a perception that it was losing its technological edge, and had it failed to lead the 4G race, the loss would also have been palatable – after all, back then no one would dare have questioned the idea of US hegemony, and it would have been losing against either its South East Asian or European allies, countries that not only were in mutual treaties, but more crucially, it had major military assets stationed in. Now however it is not only losing a battle over a potentially highly disruptive technology, but it is losing it to China, which the US now openly defines as its strategic rival.
But there is more to this equation: the tensions between the dominant hegemonic sea power that is the United States, and an aspiring technological powerhouse – as well as a land power – that is the People’s Republic of China showcases the inescapable reality of our times: that the world of the past 30 years, the world of Pax Americana, and the corresponding all-encompassing globalisation has run its course. The US is now wary not only of China’s industrial capacity, but also of its increasing technological prowess – and in response, is actively attempting to preclude China from gaining any further foothold in the global market. This in turn must be a source of concern to China; if the US is willing to use its soft power and position in the global market to stifle China, then it is not outside the realms of imagination that it could go further, and utilise its fleet not as a guarantor and enabler of freedom and economic exchange, but rather as a tool of coercion – the might of the US Navy may be used to restrain, rather than enable. This interlacing of geopolitics, economic interests and tech rivalry spells the unravelling of globalisation and the world order that was built around it. It is how world wars are sometimes started.
US Navy ships conducting operations in the South China Sea (photo: https://www.public.navy.mil)
This also coincides – or perhaps is at least partially caused by – the US making a tectonic shift in its policy and its outlook towards the global international system which was first established after 1945, in Bretton Woods, and then galvanized around the US as the sole global hegemon following the collapse of the Soviet Union and the end of the Cold War. China as well is finding the reality imposed by the United States to now run counter to its ambitions – from attempts to curtail its ambitions in the global exchange market, to the unwillingness of the US to accept the PRC’s preponderance within the confines of what it considers to be its natural sphere of influence – the South China Sea.
The current power configuration is sometimes compared with that of the power dynamics between the United Kingdom and the German Empire in the early 1900s. Back then the UK was the world’s premier naval power – Britannia ruled the waves, being both enabler, guarantor and a de facto sovereign of the maritime trade and the prosperity it bestowed upon nations. Germany, fresh after its unification in 1871 was an up and coming industrial powerhouse. Long story short, the superiority of German exports began to threaten the UK’s position at the very top of the global commercial food chain. When Germany began to build up its naval power, a chain of events (and an arms race) was put in motion that eventually resulted with the onset of the First World War. This came as a shock to many, not only because the economies of the two countries (and other countries that would later form the Entente Cordiale and the Triple Alliance) were so very intertwined, but also the royal houses of the countries were close families – including Wilhelm II and Edward VII (with the former being – allegedly – an anglophile as well). In 1907, seven years before the war erupted, British diplomat Eyre Crowe (himself born in Germany) warned that the trajectories on which both countries found themselves may result in a clash. The idea that Germany would not be willing to tolerate the UK’s naval superiority and thus remain at the mercy of its willingness to permit German trade with the rest of the world formed the basis of the Crowe memorandum, which served to explain the underlying power dynamics between the established sea power and a rising land-based hegemon.
The Crowe memorandum is important on multiple levels. First, it showcases why the conflict between a dominant naval power – Great Britain and the United States, and an aspiring land empire – Germany and China – is inherent and inherently hard to avoid – this, however has been duly noted by many, in the US, China and beyond. Surely the parallels must be obvious – like before WW1, the world today is that of a historically anomalous period of welfare, peace and economic cooperation. The world is as it was just over a century ago economically interdependent – to the point that some are led to believe that the sheer scale and degree of shared economic interests will be enough to preclude any major conflict.
Secondly, and less obviously, Crowe writes of the ways a maritime empire needs to act in order for its overwhelming and omnipresent power to be accepted by the world. Crowe writes: It would, therefore be but natural that the power of a State supreme at sea should inspire universal jealousy and fear, and be ever exposed to the danger of being overthrown by a general combination of the world. The danger can in practice only be averted—and history shows that it has been so averted—on condition that the national policy of the insular and naval State is so directed as to harmonize with the general desires and ideals common to all mankind, and more particularly that it is closely identified with the primary and vital interests of a majority, or as many as possible, of the other nations. Second only to the ideal of independence, nations have always cherished the right of free intercourse and trade in the world’s markets, and in proportion as England champions the principle of the largest measure of general freedom of commerce, she undoubtedly strengthens her hold on the interested friendship of other nations, at least to the extent of making them feel less apprehensive of naval supremacy in the hands of a free trade England than they would be in the face of a predominant protectionist Power.
Against this backdrop, the way the US approaches the 5G situation is also a deeply consequential affair. The US is a sea power and its actions have so far been guided by the universal code of conduct of such maritime nations. As Crowe argued, for the overwhelming and inherently threatening might of a hegemonic sea power to be accepted it has to facilitate trade, it has to serve a purpose greater than just its own benefit and domination. This was the case with England in its heyday, and so it was the case with the US until now.
Having lost its technological edge, the US is looking to block the roll-out of this technology, to block a tool enabling commercial flows, and thus to serve not as a global facilitator, but rather as an obstructor – an action that could be considered antithetic to what traditional naval powers were.
A certain “ruthlessness” (vide Canada, Australia getting punished by China for their siding with DC, and being offered little to no respite by the US, as well as indifference shown to the UK after it’s ship was seized by Iran in response to Gibraltar seizing Iranian vessel) with which the current administration in Washington is going about its foreign policy only serves to exacerbate the feeling, especially since the US is either unwilling or unable to sweeten the deal for all those affected by its strategic rivalry with the PRC. In response, the US is already facing major pushback from nations that are its allies not only in name, but in real and actual strategic terms – from New Zealand to the United Kingdom. Once it stops being a traditional naval power, what will the US become, and how will it be perceived by other actors in the international arena? After all, as Crowe argues, perception of benevolence is a crucial factor, especially for a sea power.
Crowe’s message should serve as a memento to US (and quite frankly, Chinese) policy makers – not only because it underscores how likely it is that the trajectories of the US and China are on a collision course, but perhaps just as importantly, that if the United States reverts from the traditional ways a sea power operates – and it certainly appears that it is doing so with regards to the 5G race – it will lose a locus of its power. Judging from the world’s reaction to its efforts to stop Chinese-made 5G while not proposing alternatives, it already has lost some of it. The US is therefore not only well on its way to losing this crucial race but, more worryingly, it is electing to deal with its loss in a way that undermines the locus of its power as a maritime hegemon; unable to compete, the US is choosing to erect obstacles, rather than facilitate economic exchange.
Eyre Crowe (photo: Wikipedia)
And then there is the question of what China becomes – assuming it can retain its current trajectory of economic growth (which is a big if) and come through on the extremely ambitious goals enshrined in the BRI concept. If completed, the Belt and Road Initiative will alter the very nature of global trade patterns, and in doing so, turn the traditional power constellation under which land powers operate on its head. While the US is doing what naval powers don’t usually do, China is also entering uncharted waters in that its unparalleled effort has the potential to effectively nullify the traditional advantages naval powers have over land powers. By developing infrastructure that promises to connect the entirety of Eurasia in a commercially meaningful way, China is breaking with at least some traditional limitations – programming in a sense – that are typically imposed upon land powers. While it will not be able to escape the fact that neighboring states will be wary of its rise in stature, it can negate the limiting factor that the tyranny of distance has imposed upon it. And if there is one imperative guiding the United States, then countering the emergence of such a challenger at any cost is it.
This is a part 2 of the S&F Hero article describing the technological landscape and the geopolitical impact of fifth generation cellular network technology.
You can find part one here:
S&F HERO: 5G, GEOPOLITICS AND CROWE MEMORANDUM. PART 1: TECHNOLOGY
Autor
Albert Świdziński
Director of Analysis at Strategy&Future.
Strategy&Future
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