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It has now been a year since the Department of Commerce announced that Chinese telecom giant Huawei would be added to a trade blacklist, yet critical unintended consequences of these restrictions remain unaddressed. The trade restrictions have not proved especially effective and have directly hurt U.S. technology exporters. But what’s worse, the trade ban limits the ability of U.S. companies to effectively participate in standards setting organizations whenever Huawei is present. This constraint only hurts U.S. competitiveness with no clear benefit and should have been addressed by the Commerce Department long ago.
While the United States is right to confront China over its various forms of innovation mercantilism, time has shown that banning exports to Huawei is not an effective tool to achieve the administration’s goals. The ban shoots ourselves in the foot, undermining U.S. tech exporters while likely accelerating China’s efforts toward technological autarky. We would be better off if policymakers abandoned these restrictions and instead aimed for a broad, coordinated strategy to address unfair Chinese practices and more targeted efforts to create a diverse and innovative telecommunications equipment market that would be harder for Huawei to corner.
At least the intention behind the ban was understandable: The U.S. government sees Huawei as a national security threat and wants to limit its growth, but the way the trade ban restricts the sharing of technology proposals in standards setting bodies only hurts U.S. firms—not Huawei. The trade limitations, according to an advisory opinion issued by the Commerce Department’s Bureau of Industry and Security (BIS, the agency responsible for the ban), mean that a variety of normal standards setting activities are prohibited if Huawei is involved. Huawei participates in a wide range of important global standards setting organizations—there is no clean way to put up a firewall between the Chinese tech juggernaut and all U.S. technology firms. The Economist put the problem directly: “The fight with Huawei means America can’t shape tech rules.”
Standards are a crucial component for the continual development, commercialization, and trade of technological innovations. Developed by technical experts, standards foster economies of scale and efficient trade by making it relatively easy for firms to produce a good or service that conforms to mutually accepted technical characteristics across markets. Standards define key technical terms and components, creating a platform upon which anyone can develop new applications and enabling modularity and specialization through common interfaces.
Standards shape the future direction of technology and its interaction with society. Major standardization bodies like the 3rd Generation Partnership Project are central to the development of 5G, but hundreds of smaller groups make continual improvements to well-known protocols like Wi-Fi and Bluetooth or focus on narrower component technologies and interfaces. Firms seek to get their patented technology into standards, making the standards setting process a critical opportunity to recoup large investments in R&D. Participation is key to the continued cycle of innovation and U.S. technological leadership.
To make the problem worse, these limitations on U.S. companies come while China is making a concerted push to expand its role within existing global standards setting organizations and pull more companies into Chinese-led bodies as a part of its “Standards 2035” efforts. This administration is putting U.S. companies in the back seat as others have free rein to shape the underpinning technology of the next generation economy—a far cry from “America first.”
Thankfully, there are recent reports that BIS is looking to correct this costly mistake. Already a year after the Huawei trade restrictions, BIS should act quickly to ensure that U.S. companies are able to engage effectively at standards bodies—better late than never.