China Telecoms and Incoherent US Foreign Policy

China telecom companies growing globally Go to any of the recent shows in technology and telecom such as CTIA Wireless and Interop and you see a huge presence from Chinese telecom companies like Huawei and to a lesser extent, ZTE. Moreover, talk to the competition and you will hear them say these companies are poised to “take over the world.”

This shouldn’t be a surprise because these companies have been able to benefit from the massive build-out of China’s tech and telecom infrastructure and while the rest of the world was experiencing post telecom-bubble burst syndrome, their Chinese competitors were feasting on home-grown growth and rapidly expanding worldwide.

No selling into the US Of course these companies are said to be state-controlled by the US which is why they aren’t allowed to make certain acquisitions or even sales into the US. Recently Owen Fletcher wrote about comments made by ZTE chairman Hou Weigui who said he won’t try to make core telecommunications deals in the US to companies like AT&T, Sprint Nextel, T-Mobile and Verizon Wireless due to political obstacles. He went on to cite a deal with Sprint which the government prevented. Interestingly the company is able to sell devices like handsets and modems in the US.

US policy towards other countries Yet the policy of the US seems unclear at best and the only way to determine if something is allowed seems to be to try it and see what happens. Remember for example in 2008 when Huaweii tried to buy 3COM and the government said no due to national security concerns?

One wonders how these decisions are made and who makes them. For example would the military look at its inventory of equipment and decide that it has x% of its inventory supplied by 3COM and as a result it is too much of a risk to have a company from China supplying upgrades, etc?

Import versus export And this leads us to the idea that if we block outside companies from doing business in the US, how does a country like China reciprocate? After all, China is a massive market and growing quickly. What are the negative economic ramifications of making decisions which directly protect national security yet hurt the US economy to such an extent that we become systemically weaker because we have been financially compromised as a result of excessive debt to pay benefits to legions of unemployed and underemployed?

Consistent foreign policy? Now I am not a foreign policy expert but it was my understanding that countries do things in their national interest. This would make sense to the extent that the US doesn’t agree with China on human rights yet we are able to import cheaply so we have welcomed them as a major trading partner. Yet other countries with similar human rights abuses such as Iran and Cuba aren’t allowed to trade with us at all. I realize the differences but just want to point out the inconsistency.

Iran A few years back when Iran had its large protests, many western telecom companies pulled out of the country or at least scaled back. An article in the Wall Street Journal explains how this void has been filled by Huawei. It’s not like US companies were allowed to sell there anyway but NSN was selling there and now they aren’t doing as much business. Interestingly, part of the reason Huawei is so successful in Iran boasting 1,000 employees is they have the ability to give excellent tracking and monitoring solutions to the Iranian government who can arrest and detain anyone who utters something which the regime doesn’t agree with. And they can do it in a matter of minutes. Of course you can imagine the sales pitch… Hey, we have tech which helps censor and track a billion people and keep them from organizing anything more threatening than a birthday party, imagine what we can do for your hundred million.

When looking at these situations the questions western companies have to ask is how exactly does this embargo thing work these days? There used to be a time about 60 years ago when the US made everything so an embargo made sense as it would really hurt a country’s economy.

But today regardless of where something is invented, it’s manufactured in China. So what happens is the west funds manufacturing of products which find their way via black/grey markets and even via direct distribution to countries such as Iran.

So we not only don’t hurt the target country but any profit western companies could make is transferred to another country – in this case China, our largest global competitor! So we have an embargo in place to theoretically hurt one country but the only one who suffers is ourselves.

Ditto for Cuba. I am still trying to understand how the US benefits from trade restrictions with Cuba – I am always fascinated by the Cuba tourism signs I see when I get to the airports in Canada and I wonder how off it is that if you happen to live a few miles south of a designated border, you can’t go to specific beaches in the Caribbean.

China censorship In 2006 I railed against our politicians for drafting a bill that would keep Internet companies from putting their servers in China because of their horrible human rights record. I argued this made little sense as Chinese companies would just copy our tech leaders and provide the same or similar services.

The only purpose of such bills it seems is to harm US companies and reduce employment – after all, there are many other ways to pressure China besides denying them access to Yahoo servers in their country.

Consistent Global strategy Is it not time to have a consistent strategy regarding other nations? I am still fuzzy on Russia – I know China is an issue – what about the Middle East… Who do we support? Which dictatorships are approved? I get the sense for example we would side with the Saudi princes over the people if there was turmoil in the country but I’m not sure. Moreover, the Saudis are pretty good at this whole censorship and repression thing – do we want to go after them as well? How about the rest of the region? Human rights aren’t exactly that popular in many other parts of the world.

Is it time for a foreign policy statement from our government which will give US companies clarity as to what they can and can’t do in other countries? For example, in the US and much of the western world it is illegal for our companies to bribe in other countries to help sell products. Yet in much of the rest of the world, if you don’t bribe, you can’t sell much. So exactly how is it in any country’s best interest to force a company to abide by specific rules which don’t make business sense elsewhere?

Moreover, what is the different between a bribe and a political contribution or money spent on lobbying in the US?

Clarity on China We know China is a massive trading partner but does this mean they are allies? Obviously they aren’t based on some of the behavior outlined above. So they are frenemies. It seems we know they will be a larger financial force than the US eventually and this will in turn mean they will become a greater military force as well.

Change our behavior Part of the reason China is winning the trade war with the US is their limited regulations, low standard of living, minimal taxation, lack of unions, limited environmental regulations, no sexual harassment rules, no hostile workplace rules, no worker’s compensation rules, no unemployment compensation rules, no payroll tax and the lack of a tax code you need a consulting company to decipher.

I love Chinese products. It is great that they allow even the poorest people to purchase inexpensive items – but I believe it would be a better world if the US could compete more effectively with them. Isn’t this a platform that some politician should run on? Hundreds of millions of jobs in China and India are the direct result of demand from US citizens and investments from US corporations yet at a time with rampant US unemployment – how is it these issues are not the central ones in virtually every political debate?

It’s a global world – very global. Yet, the problems the western world faces never seem to be put in global context. We obviously won’t solve our problems if we can’t have an honest discussion about the root cause of them.

In short, we need to overhaul our tax code, regulations, reexamine the effect of embargos and rethink how the US will compete with the rest of the world going forward. Other countries which are taking our jobs have a cohesive strategy as to how they will dismantle the US as a global power and our response seems to be to ignore the problem and hope it goes away.

Remember, if you think rapidly expanding Chinese telecom companies are a threat to western interests and economies – wait till Chinese car companies start to open dealerships in every city.

For all the complaints of how the US government is in the pocket of the corporations. It would seem if this was really the case, we would change a whole heck of a lot to make this country more globally competitive.

And if it isn’t the corporations that force the government to make these changes then it’s up to citizens. Hopefully we will all do our part.

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