Trump Was Right to (Temporarily) Lift the Huawei Export Ban

Robert D. Atkinson June 29, 2019
June 29, 2019

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Following a meeting with Chinese President Xi Jinping on the sidelines of the G20 meetings in Tokyo, President Trump stated that he had agreed to lift the “deemed export” ban on Huawei. This export ban was announced after the Chinese government back-peddled on their agreement with the administration in May. President Trump declared that U.S. companies (and other companies whose products contain significant U.S. inputs) could no longer sell to Huawei, a response that would not have adequately addressed the legitimate concerns the administration has with Chinese “innovation mercantilist” practices. While Huawei has said that they have stockpiled some inputs and could likely obtain non-U.S. parts for some of their products, the ban would nonetheless have imposed significant pain on Huawei.  The loss of the ability to use the full Google Android system (including the app store) alone would have been a severe blow, as few consumers outside of China would buy a Huawei phone without such functionality. Moreover, for other products they make including telecom equipment, it is not enough to find a substitute for most parts; they need all the parts. As such, this ban served as a powerful weapon to get the Chinese government to the negotiating table and to make a reasonably strong and enforceable deal.

Unfortunately, some in Washington confuse the issue of export bans on Huawei with import bans on Huawei devices, including telecom equipment. They argue that if Huawei equipment introduces systemic cybersecurity vulnerabilities into the United States telecom and internet system, then an import ban is not enough; the administration should also try to cripple Huawei with export bans. This confuses the two issues. If Huawei devices are inherently insecure, especially with regard to Chinese Communist Party spying, the import ban is fully sufficient to address the issue. The export ban was never about cybersecurity; it was always about inflicting pain on the Chinese economy so that China might make the kind of deal that would lead them to at least partially act as they should as a WTO member. No more forced tech transfer. Dramatically reduced joint venture requirements. Massive reduction in unfair and distorting industrial subsidies, especially those related to the “Made in China: 2025” industries, including to Huawei. Elimination of cyber theft. And more.

The key question with regard to lifting the ban is whether this is done in the service of a tough, fully enforceable trade agreement—the kind U.S. Trade Representative Robert Lighthizer rightly insists on. If it is, then the President is right to at least temporarily lift the Huawei export ban.

Still some criticize the deal, saying that President Trump got nothing in return. This criticism misses the point. It does not appear that President Trump has agreed to permanently lift the ban. Presumably he has made it clear to Xi that if China does not play ball, the ban could and would resume. It is highly unlikely that Xi would have or could have agreed to reopen negotiations without this “concession.”

Finally, this gets to the real issue at hand: what is the right goal of the administration vis-à-vis Chinese economic and trade policy. There are only two options: getting China to reduce its innovation mercantilist practices or decoupling.  The decouplers argue that, not only will China likely fail to live up any agreement, but even if they do, they will still prosper and progress technologically. The only way to slow China down, the decouplers argue, is to decouple: impose harm on Chinese tech companies with tariffs, export bans and other tools, while pressuring U.S. and other companies to withdraw production from China.

If China proves unwilling to stop its predatory and unfair practices, maybe it will have to come to decoupling. But jumping to that conclusion before seeing if President Trump’s trade negotiations can work is premature. Let’s see if Lighthizer—a very tough negotiator—can get the deal he wants and the world (not just the United States) needs.