China, Huawei Technologies, and Obnoxious U.S. Protectionism
The Wall Street Journal reported last week that "A Chinese telecommunications giant that has been attempting to expand in the U.S. poses a national-security threat, and may have violated U.S. laws." It seems all that was "violated here" are U.S. markets that U.S producers want to themselves.
The weak case against Huawei and ZTE Inc. is based on the suggestion that, according to congressional investigators, they "pose security risks to the U.S. because their equipment could be used for spying on Americans." More realistically, both companies pose a risk to the market share of U.S. firms that have influential ties in Congress.
Specifically, a pending report calls for blockage of mergers between U.S. firms and the two Chinese telecommunication firms, plus it recommends that U.S. companies and governments "seek alternative vendors for telecommunications equipment." The aristocracy of pull lives, and that it does is not a good sign for the U.S. economy.
For one, it can't be stressed enough that if the Chinese can't sell to us, then we can't sell to them. Much as mainstream economists might wish otherwise, we trade products for products, and if we're not a buyer of Chinese goods, we also can't be a seller to them.
U.S. exports to China have skyrocketed since the ‘90s, but actions like this have the potential to reduce our outflow over there. Of course if the Chinese decide to retaliate, our ability to export will be constrained even more.
Considering prices, it is thanks to competition that prices regularly fall as myriad producers seek out profitable endeavors; their profits a function of how well they serve our needs. Blocking Huawei means that we'll have less choice in the telecommunications realm, and as there will be logically less competition, prices of goods are less likely to fall. This is hideous on a consumer/business level, but considering how wasteful are our governments, can anyone with a straight face say that we the taxpayers should foot the bill in order to prop up Huawei's U.S. competition?
Importantly, non-telecommunication businesses will suffer the above given the simple truth that more expensive telco gear will mean less in the way of funds to purchase other needed items. Sadly, the story for U.S. companies lacking influential Washington ties doesn't get any better.
Not only will their costs logically rise, but so will their avenues to China growth logically shrink. Once again, if the Chinese can't sell to us, we won't be able to sell to them. Protectionism, and this is protectionism, means we subsidize the weak at the expense of the strong. U.S. companies eager to expand their markets as much as possible will navigate smaller markets so that well-connected U.S. telcos can stay in business - for a time.
Considering investment, and there are no companies and no new jobs without it, if protectionism against Huawei is just the beginning of a long-term trend, the U.S. economy will simply move backwards in support of the weak at the expense of the strong; the latter a certain investor repellent.
Considering investment of the merger kind whereby Huawei and others might acquire U.S. companies, this too is something we should be embracing. With foreign investment comes knowledge about how to do things better, and with enhanced knowledge, job-creating growth. Are we better off, and our diets more varied and tasty thanks to foreign influences? Yes we are, and foreign investment in the telecommunications sphere is no different.
Think about the Internet and the cellphones we carry. Thanks to unrelenting competition in the Internet space, we've evolved from dial-up AOL to high speed Google Mail, and then with phones the entrance of Blackberry and the iPhone into the marketplace has led to amazing enhancements in terms of how we communicate with others; Blackberry and Apple having eclipsed the Nokia and Ericsson phones that were once market leaders. Competition has made us better off such that once call-only cellphones are now a phone, a computer and television that fit in our pockets.
And there lies the tragedy of barriers to Huawei's entrance that are clearly meant to protect U.S. producers. Not only would Huawei only succeed if it offered consumers something better than its competitors, but it would make U.S. competitors stronger, as opposed to weaker. Competition is surely the lifter of all boats, yet with this obnoxiously protectionist act U.S. officials are depriving American telecommunications firms of the very competition that will enhance the quality of their output.
Assuming what's been denied, that Huawei is being used as a wedge in order to spy on U.S. firms, that's not a national security matter. Pro-business as always, taxpayers shouldn't be forced to pay for a presumed security threat of the commercial variety. And then assuming the Chinese government has designs to use Huawei in order to wreak cybersecurity havoc, let's be serious. As evidenced by the size of a U.S. market that voraciously desires Chinese goods, for the Chinese to do something economically detrimental to the U.S. is for the Chinese to bring massive damage to their own economy.
Politicians act like the U.S. market is the only one that exists, and as a result they frequently put up barriers to foreigners like the one just described or, in the case of British Petroleum, they essentially tried to bankrupt it for an error that could just as easily have occurred with an oil producer possessing a U.S. address. What they miss is that the U.S. is not an island.
Indeed, if we keep bashing foreign producers like this under the hysterically false pretense that it will enhance our national security, soon enough top quality U.S. firms will be victimized by the shortsighted nature of our political class. In short, in a world that continues to globalize by the minute, we may find markets closed to our companies, and brazen governments that try to bankrupt our producers. If so, let it be said that we brought our problems on ourselves; our horrid treatment of Huawei one that could surely come back to haunt us.
