The approach taken by the U.S. government against Huawei, with export controls to sanction the company and cripple it, was hubristic—and ultimately backfired. An import ban on Huawei’s 5G network in the United States, along with urging allies and trade partners to follow suit, would have addressed the cybersecurity concerns about the company. Yet, the measures went beyond. The U.S. government took actions against the company for its alleged business with adversaries, such as Iran, which turned out to be costly for U.S. firms and damaging to American competitiveness. It later tried to cripple the company, underestimating Huawei’s innovation capabilities and the PRC’s support. Moreover, as this report shows, a 2012 Congressional report denouncing the company’s predatory practices and cybersecurity risks served as an early warning that prompted the company to invest in decoupling from U.S. technologies.
Huawei’s resiliency threatens American competitiveness and market share. After the implementation of export controls, the company has successfully launched its in-house OS, HarmonyOS, which is now being rolled out on mobile devices, tablets, and laptops—potentially threatening U.S. firms’ market share in these sectors. The company is also catching up in chipmaking and exploring new business lines, such as energy storage technologies and smart automotive solutions. Additionally, this report demonstrates how export restrictions harm U.S. companies, resulting in over $33 billion in lost sales and, in some cases, a relative reduction in R&D investments. The failure of U.S. policies against Huawei evidences an outdated rationale to address Chinese mercantilism.
The current U.S.-China techno-economic competition differs significantly from earlier episodes when U.S. technological leadership was challenged. For example, the United States regained its semiconductor lead during the U.S.-Japan rivalry of the 1980s and today commands nearly five times Japan’s global market share. It succeeded by combining restrictions, diplomacy with an allied partner (Japan), and sustained innovation. None of those conditions applies today: Chinese support offsets restrictions, the rivalry is with an adversary rather than an ally, and China has caught up or even pulled ahead in many strategic technologies. In other words, the United States is using yesterday’s tools against a fundamentally different adversary; it needs a realistic, not hubristic, policy approach.