Is Huawei a national security threat?

For people who don’t know, what is Huawei?

Huawei is a Chinese company that manufactures telecommunications equipment. Their primary product lines are smartphones and base stations that telephone networks use to connect smartphones to the network.

Can I walk into a Best Buy and purchase a Huawei product?

In most other countries, you could. Huawei has some smartphone devices which are available to consumers. Just like a Samsung Galaxy, Huawei has devices that compete with other smartphone devices. Cybersecurity allegations led Huawei to pull out of the U.S. smartphone market in 2018.

What hit the news recently is pushback related to 5G technology. Can you explain what the sentiment of anxiety would be over Huawei being involved in 5G development in the U.S.?

Wireless networks rely on base stations located on cellular towers to provide the radio connections to get to your smartphone. Historically, base stations have been manufactured by a number of different providers, including European companies such as Ericsson and Nokia. Huawei has long been a significant player in this business, and it has emphasized developing base stations for 5G more than any other company. Consequently, they are widely regarded as having a technological lead in this area. The concern is that a manufacturing company can design security vulnerabilities and backdoors into a system that can allow either that company, or some other actor, to compromise that system’s security. The UK did a recent study with Huawei’s technology, and they did find some evidence of such vulnerabilities.

So, when you say ‘actor’ you mean the Chinese government? 

Well, it can be any actor, but the concern with Huawei is that the government will exploit vulnerabilities. The reality is that Chinese companies cooperate heavily with the government. And in addition, the Chinese government is widely thought to exercise considerable influence over Huawei.

So, they have ownership. This isn’t speculative?

Huawei is controlled by its Representatives’ Commission, which is elected by its shareholders. Huawei is 99 percent owned by its employees, although Chinese legal limits on the number of shareholders a limited liability company can have requires that they register their shares through a trade union committee. The trade union reports up to the All-China Federation of Trade Unions, which is controlled by the Communist Party of China. Many observers have raised concerns that this structure allows the Chinese government to exercise significant influence over Huawei.

Which is why lawmakers are so concerned with having them involved with 5G development?

Correct.

What is the lay of the land right now with how this is being handled? There’s a sort of ban, right? 

It’s actually not a ban. On May 15, the administration placed Huawei on a list of companies indicted for exporting goods and services to Iran without Treasury Department approval. Anyone who wants to export critical technology to a company on that list must get a license from the Commerce Department before doing so. It’s a pretty major step the U.S. government can use to prevent technology from going to Huawei. Many U.S. companies have curtailed or suspended their business dealing with Huawei as a result.

The most interesting recent news happened at the G20 summit on June 29. Following discussions with Chinese President Xi Jinping, Donald Trump said that he would relax those restrictions.

Was there a reason offered why?

The administration is characterizing it as an attempt to ease tensions in the ongoing trade war. The administration has received substantial criticism for this action, primarily because it offered this concession without requiring any tangible return commitments from the Chinese. In fact, the Trump Administration started to walk back a little bit of the rhetoric that it released at the G20.

Do we need Huawei to develop these networks?

At this point, Huawei’s 5G equipment is cheaper than those offered by any other provider. Despite that fact, all of the major U.S. providers have not incorporated Huawei technology into their networks, but having to use more expensive technology raises the cost of deploying 5G. Smaller U.S. providers have deployed Huawei technology, and many major European carriers have done the same. And the U.S. has been pressuring these providers and countries to begin disengaging from Huawei technology, and one of the criticisms of the current change in U.S. policy is it waters down the message we’ve been sending to our allies.

How are our allies treating this? Are they accepting Huawei tech?

They are trying to split the baby. They have authorized the use of Huawei tech for non-critical systems, but are preventing it from being used for critical systems. Many technologists have questioned whether that distinction will solve the security problems many people perceive.

If we accepted their technology and took advantage of the cheaper costs to develop infrastructure, what is the worst-case scenario?

The worst-case scenario is that Huawei will have built in latent vulnerabilities that are hard or impossible to detect, and that during times of crisis they would have access to information that the U.S. government would like to remain confidential. 

At this point, where is public opinion?

What’s interesting is public opinion probably is being swallowed up in the larger debate around the trade war with China. People applaud the decision to stand up to and play hardball with China. U.S. companies would like equal access to China’s market, would like protection of intellectual property, would like the Chinese government to wind down ownership stakes in companies and allow its currency to float at market rates. All of those things are probably benefitted by the larger trade initiative being engaged by the Trump Administration. On the other hand, China has responded by dropping reciprocal tariffs on U.S. goods, which has hurt the agricultural sector. Huawei is also a major customer of many large U.S. tech companies, who would be harmed by a long-term ban on selling to Huawei.

If you had to place a bet, how do you see this all shaking out?

My guess is the Huawei issue will be settled in a larger context of the trade dispute with China. It will be one piece in a much larger game.

There have been suggestions the U.S. should build its own 5G network, which most observers find baffling, given the current budget constraints facing the U.S. and the reality that private companies are already investing heavily in 5G. My guess is, unless the U.S. is really willing to play hardball and ban the use of Huawei altogether, they are going to come to some intermediate compromise. The big worry, or the big hope of people watching this, is that the U.S. gets something substantial in return, in terms of fundamental structural reforms to the Chinese economy. 

The other possible lingering question is what does it do to our relationship with allies. There are a number of allies with whom we collaborate with very closely that continue to use Huawei equipment. The question is whether we will begin withholding information from them we’d otherwise share, out of concern in so doing we’d be allowing that information to be compromised to the Chinese or other actors.

Anything to add?

Cybersecurity and trade present a very difficult issue. But at the same time, what I would say is this is going to be a very delicate balance for the U.S. to strike. On the one hand, cybersecurity is a serious problem that must be taken seriously. On the other hand, the U.S. frequently accuses the Chinese government of favoring Chinese companies over U.S. companies. The problem is differentiating legitimate cybersecurity concerns from contrived claims that are simply pretexts for trade protectionism. Unfortunately, debates over which is actually true can be very contentious and more indeterminate than we would like.