How 5G got tied up in a trade war between Trump and China

What do 5G and the Chinese telecom-gear maker Huawei have to do with the escalating trade war between the US and China? In a word: everything. 5G, the next generation of wireless, will not only allow you to download an entire season of Stranger Things in minutes, but also serve as the foundation to support the next generation of infrastructure, including billions of internet-connected devices powering smart cities, cool new VR and AR applications and driverless cars.

Naturally, President Donald Trump wants the US to lead in 5G. 

What's at stake is more than just bragging rights; the outcome of the 5G race is likely to determine whether the US will continue to maintain its technological edge and shape geopolitics for the next couple of decades or if it'll cede that control to China, which sees technological dominance as a way to become a world superpower. 

In the middle of it all is Huawei. A year ago, most Americans had likely never heard of the company. Now it's in the news nearly every day as a centerpiece of the US-China trade battle. Huawei is a dominant supplier in the 5G market. But national security experts say the company's close ties to the Chinese government could be dangerous for the US and its allies, because its gear could be used for espionage or to shut down critical communications networks during some future conflict. 

Huawei is also emblematic of a bigger issue the US is grappling with. As China tries to transition from a country known for making toys and cheap plastic tchotchkes to one that leads in advanced technologies like artificial intelligence, autonomous vehicles, robotics and 5G, it's adhering to a state-led industrial policy that US intelligence officials say relies on intellectual property theft, forced technology transfers, cyberespionage and discriminatory treatment of foreign investment, according to the Council on Foreign Relations.

It's these concerns over unfair trade practices that have led to Trump's tariffs on the import of Chinese goods and the blocking of Huawei and other Chinese tech companies from access to US markets.

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China has rebutted these allegations in a 67-page document entitled, "The Facts and China's Position on China-US Trade Friction," which it published in September last year.  The Chinese embassy forwarded CNET the document when asked for comment about how the US has categorized its efforts to transform its economy. In that document, China calls the US' accusations that it's stealing advanced technologies an "insult to China's efforts to push for scientific and technological advances." 

"The Chinese nation is known for diligence, intelligence, and ingenuity," the document says. "The progress in science and technology China has made comes from years of implementing a strategy of invigorating the country through science, technology and education and the strategy of innovation-driven development, and from the hard work of the Chinese people, especially scientific workers."

To help you better understand why the US is so hell-bent on keeping Huawei out of 5G networks and what it means for the future of the wireless world, we've put together this FAQ. 

What's 5G again?

It's the next (fifth) generation of cellular technology, which promises download speeds 10 to 100 times faster than those of current 4G networks. It's being rolled out across the country now. 

One of the key benefits is something called low latency, which is the response time between when you click on a link or start streaming a video on your phone, which sends the request up to the network, and when the network responds, delivering you the website or playing your video.

That responsiveness is critical for things like driving autonomous vehicles that need to make split-second decisions to avoid crashes or using an augmented reality application in the grocery store to pick out a safe product for your child with a severe food allergy. 

Why is it important for the US to 'win' the race to 5G?

The short answer is that whichever country leads in the development and deployment of 5G technology will see more economic growth and will have more power.

"The leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector," the Defense Innovation Board, a group of American business leaders and academics, said in a report for the US Department of Defense earlier this spring. Tech heavyweights such as former Alphabet Chairman Eric Schmidt, LinkedIn founder Reid Hoffman and Walter Isaacson, the author and a former chief executive of the Aspen Institute, participate on the board.

For the US, this means maintaining the technological and economic lead it developed with its 4G wireless technology. But for China, it's an opportunity to surpass the US and the West to become the economic and geopolitical superpower it has long wanted to be.

That said, not everyone agrees that it's a race. In a blog post last week, former FCC Chairman Tom Wheeler said:

"'Winning 5G' is not so much a 'race' as it is a process. Characterizing 5G as a contest demeans its great technological progress and the policy challenges that progress presents. 5G should be more than a political talking point; the new network represents the need for a meaningful policy strategy."

How's the US doing? 

It depends whom you ask and on what day. Trump is all over the map. One day, he says the US is lagging in the 5G race and needs to catch up to China. The next day, he's saying the US is winning and will dominate 6G. 

Even wireless and technology experts can't seem to agree. Wireless industry trade association the CTIA claims the US is "tied" with China. And it's advocating for policy objectives to keep pushing the US toward dominance. 

But the Defense Innovation Board offered a more dismal outlook. In its report issued in April it offered a scathing assessment:

"The country that owns 5G will own many of these innovations and set the standards for the rest of the world," it said. "That country is currently not likely to be the United States."

Ouch.

Why is the Defense Innovation Board's assessment so bad?

There are several reasons. For one, the authoritarian regime in China has invested massive amounts of money in companies such as Huawei to develop 5G technology, to great success. Chinese companies hold the majority of the world's 5G patents. The Chinese government also controls China's wireless service market and is pushing its three major providers, China Mobile, China Unicom and China Telecom, to combine efforts to develop a standalone 5G network that'll commercially launch in 2020. 

Meanwhile, there are no major US companies building and developing 5G telecom equipment. Thanks to decades of market consolidation, US companies once dominant in providing telecom gear have been sold to foreign companies. And now the market for 5G gear is led by Chinese-based Huawei as well as Nokia and Ericsson, both based in Northern Europe.

The US' free market approach also makes getting a nationwide 5G network built quickly a challenge, as the four major US wireless companies struggle to balance intense competition with network investment and innovation for 5G. 

But the biggest issue for the US, according to the report, is that the country hasn't been quick enough in making available the wireless spectrum that's essential to deploying the service. And the spectrum the US is making available is the wrong kind. 

Specifically, the US has been allocating a lot of so-called millimeter wave or mmWave  spectrum, which can transmit huge amounts of data very fast. But signals can travel only over short distances, and interference like trees or even bad weather can disrupt service. The problem with using this spectrum is that it's hugely expensive to build a network this way. And it'll be impossible to blanket the nation with the service, because it'll be too costly.

Ideally, the US needs midband and low-band spectrum in the mix. The only problem is that the prime spectrum that could be used for this service is already being used by the military. And getting government agencies to share spectrum with commercial entities is no easy task. The report says the US needs to work more quickly to force military and government stakeholders to share this spectrum with the wireless industry. 

How does Huawei fit into all this? 

Huawei is one of the biggest makers of 5G equipment, and its technology is also considered to be the most advanced. And it's the second largest smartphone maker behind Samsung, having surpassed Apple last year. 

But it's not your average tech giant, according to US national security experts. The company, founded in 1987 by a former officer of the Chinese People's Liberation Army, still has close ties to the Chinese government, according to six US intelligence chiefs, including the directors of the CIA, the FBI and the National Security Agency, who testified before Congress in 2018 that the company could conduct "undetected espionage" if its gear was used in US networks. Huawei has repeatedly denied these claims. 

For years, national security experts in the US have been concerned about Huawei, fearing that Beijing could direct the company to put backdoors in its software to spy on the US and its allies. They also fear that Huawei's gear could be used in a massive cyberattack that could disrupt communications networks in the event of a conflict between the US and China.  

The company has also been accused by the US Justice Department, in indictments that included 23 counts of alleged theft of intellectual property, obstruction of justice and fraud related to allegations it bypassed US sanctions against Iran. Huawei CFO Meng Wanzhou was arrested in Canada at the request of the US, and awaits extradition.

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What's the government done to ensure 5G Huawei gear won't be used in US networks?

All of this has led to the US cracking down on the company. Last month, Trump signed an executive order essentially banning the company from all US networks. On the same day, the Trump administration also blacklisted Huawei, adding it to the US "entity list," which prevents it from buying US products and services. (Yes, that means Google mobile services too.) 

Huawei has filed a motion in US court to have US legislation that bars federal agencies from buying its products ruled unconstitutional. It's also sent a memo to the FCC in which it objects to being banned on the grounds of national security threats.

Still, hardware and software vendors have been fleeing Huawei: Amazon Japan reportedly no longer offers Huawei devices for sale, and in May Google locked Huawei out of its Android updates, though the Commerce Department granted it a three-month general license to update existing devices. And now it looks like Huawei could use Android again.

What about networks in other countries?

While the four major US wireless carriers have kept Huawei gear out of their existing 4G networks and aren't planning to use it for 5G, it's all over Europe and other parts of the world. Networks in the UK and Germany have Huawei gear powering their 4G networks and are starting to upgrade to the company's 5G gear. 

US Secretary of State Mike Pompeo has been traveling around the globe urging other nations to stop using Huawei gear, and he's been threatening to not collaborate or share intelligence information with countries that use its equipment. This is a huge ask by the US government, which will cost these countries billions of dollars and delay their own rollouts of 5G service. 

So it's no surprise these countries aren't jumping in line. The UK and Germany each say they're still evaluating the risks posed by Huawei gear in their networks.  

How does all of this relate to Trump's trade war with Huawei?

In general, US officials don't like the way China does business, or its ambitions to become an economic superpower by beefing up its technological prowess. They claim the country's policies are unfair and encourage intellectual property theft and corporate espionage while forcing control of foreign companies operating in China. 

To combat this, Trump has waged a trade war, ratcheting up tariffs to 25% on some imported Chinese goods as a way to get Beijing to the negotiating table. As part of this strategy, the Trump administration has also used the national security concerns specific to Huawei and its ban as bargaining chips in the negotiations. 

It sounds like Trump is sending mixed messages. Is that a problem?

Indeed, less than a month after banning Huawei from US networks and restricting US companies from supplying the company with key components, Trump then eased those restrictions, allowing US companies to get licenses to supply the company in cases where there's no threat to national security. 

Experts say that throwing Huawei and the national security concerns into the trade negotiations muddies the waters. 

"It weakens your ability to take a clear and consistent stand in defense of national security," said Scott Kennedy, deputy director of the Freeman Chair in China Studies at the Center for Strategic and International Studies. He said it shows China and US allies that the security concerns may not really be a big deal.

Adam Segal, director of the Digital and Cyberspace Policy Program at the Council on Foreign Relations, agrees that Trump's approach is misguided. "When the president suggests that he could make a deal with China on Huawei as part of a larger agreement on trade, it sends the wrong message to our allies," he said. "They aren't going to commit to removing Huawei from their networks and risk being left out of whatever deal he strikes with China."

What does the Huawei ban in the US mean for 5G? 

It's difficult to know specifically, since the policy seems to change almost daily. 

But Hans Vestberg, CEO of Verizon, the largest wireless carrier in the US, told a CNBC reporter last week that he's not worried about the ongoing US-China trade war affecting its 5G network. 

"We are executing our strategy with our Western European vendors," he said. "It seems that you can do that without Huawei."

He stressed that Verizon has no reliance on Chinese gear. 

"We don't use any Huawei equipment, and we have no impact from the Chinese trade war," he explained. "So for us, this is a nonevent."

Likewise, none of the big four US carriers uses Huawei equipment, so the impact is minimal. 

What about the smaller players?

Small rural carriers will be affected because they used Huawei and ZTE gear in their 4G networks since it was more affordable. And this could be a problem for getting 5G into rural communities. 

FCC Commissioner Geoffrey Starks and others are pushing to have this Chinese gear ripped out and replaced to ensure the security of US wireless infrastructure. 

"Having Huawei in our current network infrastructure means that we are exposed to the same type of risks that we're talking about for our next-generation 5G networks," he said in an interview with CNET. "One thing I want to make clear is that we can't just focus solely on making sure our networks are secure going forward, but that we make certain we don't have any national security risks in our current networks, when we know there is lots of Huawei gear already out there."

Lawmakers are already proposing bipartisan legislation to help fund the rip-and-replace effort. In their bill, Sen. Roger Wicker, a Republican from Mississippi, and Sen. Mark Warner, a Democrat from Virginia, have suggested putting $700 million toward dealing with the issue.

But representatives for rural carriers say the cost is likely higher. Last month Carri Bennet, general counsel for the Rural Wireless Association, took part in a workshop about the issue hosted by Starks at the FCC. She said the price tag on replacing Huawei or ZTE technology will likely range from $800 million to $1 billion. 

She also explained that swapping out this gear will take considerable time and effort and can't be "done overnight or with ease." She said members of her association estimate it could take between four and 10 years to complete. 

Chris Reno, director of accounting for Union Telephone Company, said that "Every dollar and man-hour spent on the project represents resources that don't expand coverage, don't build towers and don't improve broadband in rural areas or help our communities."

Are there other effects the Huawei ban and trade war may have on 5G? 

One other potential consequence is that it may slow the development of the final 5G standard and could potentially split the market in terms of the technology. 

The full standard for 5G isn't yet complete, and the process to finish it will likely take years. Huawei and other companies developing 5G technology are very involved in the process. But a report from Reuters last month indicates that some US chipmakers are restricting their employees from working closely on the standard with Chinese counterparts at group meetings. 

Though the Commerce Department hasn't restricted collaboration on the standard, any reluctance to work together, whether formal or informal, could slow the development of the technology. Ultimately, it could also lead to a split in the standard that could mean the US would be using different 5G technology than China and other countries. 

This has happened before, when the US embraced the cellular CDMA standard in 2G and 3G, while the Chinese government worked to fund the rival TD-SCDMA standard. Meanwhile, Europe went with its own GSM standard. 

One thing is clear: The situation is still evolving and changing. And it's hard to predict what'll happen next. 

The story originally published at 5 a.m. PT.
Update, 7:30 a.m. PT: To include additional background.