If you watched the third presidential debate this week, you got the sense that in the U.S.-China relationship, there are only good guys and bad guys, and all the bad guys are in China. The Americans are the valiant defenders of well-paying jobs; the Chinese are the ones who make tires so cheap it hurts the Americans. The Americans have a currency so free it’s the envy of the world; China’s is so manipulated it stunts competition the world over. But the squabbling isn’t limited to what you heard at the debate or just the two governments. It’s also happening between governments and private companies.
For years, Huawei, a Chinese telecom giant, has been trying to break into the U.S. market. Huawei wants to provide communication infrastructure to the U.S., but the U.S. wants to make sure Huawei, founded by former members of the People’s Liberation Army, isn’t actually a spy organization. Huawei claims to be just like any other Silicon Valley tech giant. U.S. intelligence agencies, despite finding no evidence of spying, view Huawei’s technology as too vulnerable to hackers. The House Intelligence Committee classified Huawei as a national security threat. State capitalism and the challenge it poses have expanded enough that the government is officially worried about them.
The U.S. appears to be coordinating with the Canadians to resist Huawei’s advances. Stephen Harper, the Canadian Prime Minister, called his country’s relationship with China “complex” and acknowledged that there’s a national security dimension to its dealings with Huawei. In the midst of investing in cyber security, the Canadian government is also considering whether to allow Huawei to bid on building a new national email system.
The challenge for the U.S. is in developing even broader coordination against Huawei’s advances — and it won’t come easy. Granted, Britain’s Parliament is investigating the relationship between Huawei and British Telecom, but that doesn’t mean the U.K. will adopt the American stance. In response to the U.S. committee’s anti-Huawei announcement, British Prime Minister David Cameron came out and said his government would not change its relationship with the company. Huawei employs 800 people in the U.K. and a recent $2 billion investment will create 700 more jobs in years to come. Europe will be even more difficult to convince — Huawei is already well-established there, with $3.75 billion in sales in 2011; the relationship is just too lucrative for recession-riddled countries to pass on.
This is part of a larger trend, as we’ve seen many American allies actively invite Chinese investment. British foreign policy has focused on getting commercial deals done. Angela Merkel’s dealings have led many to dub the Berlin-Beijing link as “the special relationship.”
The showdown with Huawei is yet more proof that U.S.-Chinese relations are complex and problematic. It’s also indicative of a larger truth in our globalized era: that free-market capitalism and state capitalism are increasingly at odds — and economic statecraft, exemplified in the move against Huawei, is the best line of defense for the former.
This economic statecraft is the second prong of the Obama administration’s pivot toward Asia. Washington has already begun to shift its military resources, but for the pivot to be sustainable, it will have to involve more soft-power efforts. America is all over the place in Asia when it comes to security — when you have a hammer, everything looks like a nail. But the nails are fewer when it comes to the economy. China’s economic influence only grows as the U.S. scrapes its way back out of the recession.
China is well aware that clashes between state capitalism and free market entities are a two-way street. While America is resistant to Huawei, China continues to stymie Facebook, Twitter and Google’s efforts to expand in the country. Twitter and Facebook are blocked by firewall in China, and Google has a long history of tension with the central government over its censoring of search results. In their place, Chinese competitors and copycats bloom. Even American companies largely turned a blind eye to Google’s exit: They saw it as a chance to get a leg up.
One potential U.S. coordinating partner is Japan. I recently spent a week there, where the dispute over the Senkaku Islands — known as the Diaoyu in China — has turned public opinion entirely against China, Japan’s largest trading partner. From my travels, no one in Japan thinks the relationship with China can be repaired any time soon. Japanese automakers are rethinking their growth plans after Chinese demand for Japanese goods fell once the dispute began.
The United States needs to hone its economic statecraft policies and incentivize allies and like-minded free market institutions to hold the line — regardless of the rewards the Chinese offer for breaking ranks.
Can the United States pull it off? We don’t know, but it’s becoming more and more critical that it does. What we do know is that, increasingly, it’s America’s way or Huawei.
PHOTO: A cleaner wipes the glass door of a Huawei office in Wuhan, Hubei province October 9, 2012. REUTERS/Stringer