Finding a way out of the Huawei mess

For a recluse, Ren Zhengfei is certainly getting around. In the past week alone he's put himself in front of Time, Bloomberg, Business Insider and Chinese media.

He may not have done himself any favours trashing Donald Trump’s offer to include Huawei in a trade deal, and Trump himself has said he's not ready for a deal, but there is still a good chance that the US will throw Ren a lifeline.

Despite the clamour to crush Huawei, there are many across the global supply chain, including the US, that have an interest in seeing it survive. 

A positive outcome for Huawei would likely involve Trump cutting a deal with Beijing and declaring victory.

But there’s a roadblock: Huawei has been framed not as an economic problem but as a security and geo-strategic threat. A highly influential group of security officials and politicians is keen to see Huawei disappear altogether.

While their claims that Huawei is a chronic electronic eavesdropper have never been sustained, they are driven by the belief that Huawei 5G means a massive increase in network vulnerabilities.

According to a Reuters report last week, it was the findings of an Australian cyber-security exercise that convinced Washington to harden its opposition to Huawei’s 5G role.

The US concern is that 5G's massive IoT capability will create an existential security hazard through the billions of connected devices, a number of them plugged into critical infrastructure.

(Yes, an estimated 8 billion devices are already connected to 3G and 4G, but let’s not get into the weeds here.)

Secretary of State Pompeo has warned European allies that the US would reconsider intelligence sharing if they deployed any Huawei 5G kit.

It’s not easy to walk this back. Any deal would involve Trump either ignoring his intelligence services or coming up with a compromise they won’t accept.

The situation has pundits predicting the fall of a digital curtain, where the world must choose between the US and Chinese camps.

At the application layer that’s already a reality. Big brands like Google, Facebook and WhatsApp do not exist behind the Great Firewall. China's cloud and telco service providers are untroubled by foreign competitors.

It looks like the US prohibition on component supply will extend this bifurcation to the hi-tech supply chain as well. It would be a foolish tech manufacturer that didn’t already have advanced contingency plans.

From Huawei’s point of view, for all its accumulated inventory and nascent handset OS, it can’t make a viable mobile phone without the ARM architecture or Android OS.

And while Ren has boasted Huawei is two or three years ahead of the US in 5G, that is only because it relies on a raft of US and Japanese suppliers.

At a national level China’s technology deficit is even more stark. A CSIS study has calculated that in 2015 the US earned $3 for every dollar spent on foreign IP. By contrast China earned a few cents for every dollar spent, behind Brazil and India.

If they can make it look like they're not caving, Chinese leaders may be more desperate for a deal than Ren.

But the best they, and the global supply chain, might hope for could be a modified blacklist, providing Huawei access to some but not all the technologies it needs.

That could mean a reprieve for Huawei’s non-threatening mobile phone unit but a contrinued throttle on its network business.  Which means Ren has a lot more media work before him.