Australian caught in the middle as the US and China play hardball

A woman uses a smartphone outside a Huawei store in Beijing. Picture: AP

The American and Australian Huawei bans are very, very different.

Ours was tentative, almost apologetic, not even announced; the US action against Huawei was announced in crushingly specific detail this month and will probably drive Huawei out of business.

But there is much more to the American attack on China that it launched two weeks ago than the ban on Huawei and it is going to give Australia and all US allies that deal with China a very big headache. It’s as if our parents are getting divorced: who gets custody?

Unless all of America’s May 15 actions are withdrawn as part of a trade deal, the US has made a kind of declaration of cold war against China.

It seems very unlikely to be a bargaining chip: although it was announced during negotiations over trade, Huawei has nothing to do with the trade war, and in any case the US actions go far beyond that company.

On the same day, President Trump declared a “national emergency” over technology and communications security, citing “threats … by foreign adversaries …” and issued a wide-ranging executive order that potentially isolates China and throws the global technology supply chain into chaos.

Australia, meanwhile, is hiding behind the figleaf of its own Huawei ban, which is supposedly the forerunner of America’s. But that’s like saying a Liberal Party branch resolution condemning the Soviet Union in 1948 was the forerunner to the Cold War.

On August 23 last year, two days after Peter Dutton quit as Home Affairs Minister to hurl himself at the Prime Ministership like a moth at a light bulb, the then acting Home Affairs Minister, Scott Morrison (two days in the job), and Communications Minister Mitch Fifield, issued a joint statement headed: “Government Provides 5G Security Guidance To Australian Carriers”.

The statement did not mention Huawei, but the company said later that it had been told that it would be excluded from supplying 5G equipment in Australia as part of the “guidance”.

As far as I can tell there has been little or no context from Mr Morrison or anyone else around this, apart from the following exchange at a doorstop on October 30, when Morrison was Prime Minister: “Journalis: Can I ask you on Huawei, are you concerned that it could damage relations, banning them from doing work with our 5G network? Prime Minister: No.”

In other words, the Australian Huawei ban was tentative, a bit embarrassed, with Cabinet forced into it by the spooks in the Signals Directorate, but their hearts weren’t in it. And why would they be? China is our main trading partner, and we’re banning their national champion?

In stark contrast, the American action against Huawei earlier this month, is full on, both barrels, and unapologetic, and unlike Australia’s is aimed at US companies supplying Huawei, not the other way around.

It was done on May 15, by the Bureau of Industry and Security (BIS) of the US Department of Commerce announcing that it would be adding Huawei Technologies Co. Ltd. and its affiliates to the Bureau’s “Entity List”.

(The Entity List is a list of foreign companies and government bodies for which US companies need a special license from the BIS to sell anything to them. It’s almost impossible to get a license because the list operates under an explicit “presumption of denial” policy, which means licenses will be automatically denied unless there is a compelling reason otherwise. It almost guarantees Huawei’s demise, since it relies on US components and software).

On the same day, President Trump declared a national emergency and issued a wide-ranging “Executive Order on Securing the Information and Communications Technology and Services Supply Chain”.

It is a remarkable, legally worded 1800-word document. The order authorises the Commerce Secretary to prohibit any transaction involving “information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary”, where there is any risk to the national security of the United States, or where it “poses an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of information and communications technology or services in the United States.”

It takes what had been trade war to a whole new level of conflict and puts not only American companies on notice, but any American ally dealing with China.

You’ll recall that Trump’s tariffs were kicked off by an S. 301 report in May last year from the US Trade Representative on “China’s acts, policies, and practices related to technology transfer, intellectual property and innovation”, updated in November.

In early May it emerged that China was playing hard so Trump announced new tariffs, causing a 5 per cent correction in the stockmarket. But what was really going on behind the scenes was the preparation of the May 15 Huawei ban and, more importantly, the executive order.

What’s more, this is a bipartisan matter in Washington: a day after the executive order was issued, the US House of Representatives Intelligence Committee, dominated by Democrats, announced a “deep dive” focus on China, following a hearing that looked at China’s use of technology for “surveillance, influence and political control” both domestically and internationally.

In effect, geopolitics has now been inserted into the global technology supply chain, especially where it involves China, which is most of it. And more importantly for Australia, America and China are on a collision course that is about far more than trade.

The Canberra foreign policy brains trust probably thought the difficulty with our trading partnership with China and alliance with the US would come about because of the South China Sea, or perhaps Taiwan, but those things have been trumped, as it were, by the technology Cold War.

Imagine if the Soviet Union had been our biggest trading partner during the 1960s, instead of Japan?

America’s allies, including Australia, may soon be forced to make a very difficult choice.

Alan Kohler is Editor in Chief of InvestSMART