Let the Trade Wars Begin (Again)

Reuters today reported on an internal European Union Report purportedly recommending action against Chinese telecom equipment venders based on a combination of threats both to EU "security" and the commercial viability of EU telecom gear producers.

While U.S. authorities have taken great pains to develop convoluted and often contradictory and illogical conspiracy theories to justify their Cold War mentality-inspired market distortion, it would seem from the brief detail provided by Reuters that the EU's "security" veil is paper thin.  Call it what it is: Good old fashioned protectionism.

Let the trade wars begin (again).

In the (perceived) wasteland of North American telecom gear-makers, the landscape appears bleak: Nortel is gone.  Motorola is toast.  Yes, Cisco remains, indeed, aspires to extend it's business into mainstream telecom, but, it would seem, it hopes to do so on the back of anti-competitive U.S. Government protectionism.

And now, in Europe, the protectionist sirens sing.  Alcatel-Lucent, the French-based vender that swallowed the remains of America's Bell Labs, is challenged to maintain its outlandish margins in the face of commercially-rational competition from China-based companies.  Nokia-Siemens, the ever-struggling joint venture combining the flailing infrastructure assets of Germany's Siemens and Finland's Nokia, is faring yet worse.  Ericsson, long-bolstered by Sweden's government-commissioned export agency EKN, is better off, but feeling the pinch, and likely as not, eager to suckle a protectionist teat.

Shameful.

According to the Reuters' story, the EU Report found that "prices of equipment from Huawei and ZTE were on average 18 percent below those of EU producers."  The suggested assumption is that  the China-based multinationals are government-subsidized or otherwise "cheating."   Perhaps it would be worthwhile to consider some of the commercial realities:

Alcatel-Lucent, Ericsson, Nokia-Siemens and Cisco have all off-shored the lion's share of their coding and production and a healthy dose of their R&D, much of it to China where they can tap vast and markedly less-costly yet high-quality labor pools.   Even so, they maintain significant and bloated overhead in their legacy headquarters' markets, often precluded by regulation or law or social pressure from trimming (slashing?) where necessary to remain commercially competitive.

And the fact that the younger, slimmer, more dynamic China-based venders can deliver competitive product at lower cost comes as a surprise?

No, it is what it is. Protectionism.  And remarkably misguided, indeed, reckless.

Retaliation is a given.  Copy-catting in other markets, equally likely.  But the impact goes deeper.  For instance, Huawei did $32 billion in business last year.  Roughly one-third of the components in Huawei infrastructure solutions come from American suppliers.  That amounted to about $6.6 billion in procurements from U.S.-based high-tech companies last year alone.  That's a few tens of thousands of American jobs (this is where the earlier referenced to "perceived" wasteland of North American telecom gear-makers comes in: In fact, the North American, and particularly U.S. telecom industry is alive and well,just in a different form than before).  Europe accounts for just shy of another third of Huawei components, with similar economic benefits.

Sure, maybe all of these suppliers can shift their shipments to the favored "Western" venders if the U.S. and EU succeed in walling off free trade and competition.  Or maybe not.  Remember, all of the "Westerners" are in fact as "Chinese" as Huawei in terms of R&D, coding and production.  If the U.S. and EU succeed in undoing sixty-plus years of free trade, competition and innovation, it will almost certainly disrupt the global supply chains that power the ecosystems behind not just the likes of Huawei, but pretty much all of the venders.  

Yes, in five, perhaps ten years, new ecosystems should develop inside the newly-proscribed "blocs," but what commercial, macro-economic and innovative damage will have been wrought in the interim?  And for what purpose?  This is not about "national security."  It never has been.   This is just bad policy.  And it's very likely gonna hurt.  Everyone.