Europe, the US and Huawei: Do hang up!

China and the US are in conflict over trade, human rights, cyber security and much more. Europe risks getting caught in the crossfire as the US tries to prevent the Chinese telecoms giant Huawei from dominating global 5G networks and China threatens retaliation against countries that shut Huawei out.

The EU and the US do not look at China in the same way. Their incompatible approaches to Huawei’s role in 5G networks in Europe exemplify the differences. Europe is likely to emerge from the current fight between Washington and Beijing bruised by both sides.

The US sees China as its first peer competitor since the collapse of the Soviet Union. Consequently, it looks at the role of Chinese technology in its economy and that of its allies primarily with an eye to potential national security threats. Though Huawei claims to be a private company, the US government regards it as at the very least under the influence of the Chinese government and its intelligence agencies. It suspects that Huawei’s equipment could be used for espionage. And the US has charged Huawei with involvement in breaching US sanctions against Iran and North Korea.

The US has largely excluded Huawei from supplying equipment to telecommunications companies in the US. In the absence of a US competitor, the American market for 5G equipment seems likely to be dominated by two European companies, Ericsson of Sweden and Nokia of Finland. The US is so concerned about their continued viability that in February 2020 Bill Barr, the US attorney-general, suggested that the US should take a controlling stake in the companies, either directly or via a consortium of private companies.

Until recently, very few European countries shared US worries – not even the UK. The European Commission published an action plan for 5G in 2016, but it made no mention of security issues. Through affiliated research centres that it set up in Europe, Huawei was even able to benefit from EU research funding. Europe’s main interest was in deploying 5G quickly and cheaply and reaping the economic benefits of improved high-speed internet access. Consequently, Huawei (according to one estimate) is narrowly ahead of Ericsson and Nokia in the European market.

The Commission saw its priorities as ensuring that Europe got good quality 5G networks, and that there was healthy competition between suppliers and reciprocal access for European suppliers to the Chinese market. It was only in March 2019 that the Commission followed up its action plan with recommendations to member-states to assess the cybersecurity risks of 5G networks and to strengthen risk mitigation measures (a process that ultimately led to a ‘toolbox’ of recommended – not mandatory – measures).

In response to what the US perceived as European complacency, Washington began to threaten its allies with dire consequences for future defence and intelligence co-operation if they bought Huawei equipment. In February 2019, US Secretary of State Mike Pompeo warned in an interview that if countries installed Huawei equipment in their critical information systems, then the US would not be able to work alongside them or have a US military facility there. When despite these warnings the UK decided to allow Huawei to supply up to 35 per cent of non-core 5G equipment, two US Republican senators suggested that the decision could jeopardise UK-US intelligence co-operation. In May 2020, the US stepped up its pressure further by prohibiting foreign chip manufacturers from supplying chips to Huawei if they were made with American technology or equipment – the kind of extraterritorial sanctions that the EU has always opposed. The main victim in this case is likely to be Taiwan, a major supplier of Huawei’s chips 

China will presumably now accelerate its efforts to produce indigenous equivalents of the chips Huawei has hitherto bought from Taiwan and Western suppliers. The change will not affect Huawei’s dominance in the Chinese markets, or in many developing countries (where price and Chinese loans will make its offer irresistible). But it will be a less attractive supplier for Western countries.

The impact of US sanctions is already clear in the UK, where the government has reversed its earlier decision and ordered telecommunications companies to remove Huawei 5G equipment from their networks by 2027. The British government argued that there were no alternative chip suppliers in whom they had sufficient confidence, and it would therefore be impossible to guarantee the security of Huawei equipment in the future.  

It is not yet clear what other European countries will do. France has not banned Huawei equipment, but is encouraging operators not to use it if they do not already have it in their systems. Despite US efforts, however, Huawei will be a major supplier of 5G in many countries, probably including Germany. The problem for the UK, Germany and many other European countries is that China is a major market, a major investor or both; and China has already made clear that there will be negative consequences for those who follow Washington’s lead on Huawei.

The US lobbying campaign against Huawei and China’s reaction have forced European governments and the European Commission to think about the implications of relying on Chinese companies for critical infrastructure. Rather than tackling security issues directly, the Commission is focusing on being able to retaliate against state subsidies to Chinese firms that give them unfair advantages over European competitors. But such trade defences, while they may be justified in some cases, cannot fully deal with the national security risks of technological dependence on China; nor will they persuade the US (whether under Trump or Biden) that Europe understands the issues.

At the same time, the high-handed way the US has acted has strengthened the arguments of those Europeans who think Europe needs supply chains that are less vulnerable to external pressure, wherever that comes from. It would be an irony if US attempts to make Europe pay more attention to excessive reliance on China also persuaded the EU to insulate itself more against US pressure.

Ian Bond is director of foreign policy at the Centre for European Reform.