By Claude Barfield

Ten days ago, Reuters reported that the Department of Commerce’s Bureau of Industry and Security (BIS) decided to grant Huawei, the Chinese telecoms giant, a license to purchase chips used in automobile manufacturing. Given the worldwide chip shortage and the squeeze on the auto sector, this decision will give Chinese companies a strong economic boost in coming months. The Joe Biden administration has not denied the story, and the decision has been denounced by China hawks such as Sens. Mario Rubio (R-FL) and Tom Cotton (R-AR).

In truth, the controversy highlights the confusion stemming from the Biden administration’s dithering on its early promise of new approaches to Chinese state capitalism and security risks after a thorough analysis of US national interests. Now, eight months into this “top-to-bottom” review, China experts and the corporate world are growing increasingly restive and critical. As a top official at the US-China Business Council stated recently: “If the Biden administration wants to make the case that they have a different approach, it’s time to lay out the strategy they have promised.” This brings us back to the muddle over Huawei and auto chips.

As a general rule, Biden trade and security officials have followed the Donald Trump administration’s (erratic) hard line on Huawei. In 2019, Huawei was placed on the BIS entity list, meaning all tech licenses were generally off-limits, but the Trump administration allowed a number of exceptions before clamping down further just as it was leaving office. In March, the Biden administration tightened the Trump rules by further restricting companies from supplying items (chips, certainly) that could be used in 5G development.

Recently, the Biden administration seemed to define 5G applications broadly, but now — without a formal announcement — it may be drawing back somewhat. While refusing to comment specifically on decisions regarding Huawei and auto chips, a Commerce Department spokesman by implication defended any upcoming auto chip decisions by stating the Biden administration’s licensing policy still “restrict[s] Huawei’s access to commodities, software, or technology for activities that could harm US national security and foreign policy interests.”

The larger underlying issue — still
much undecided by the US — is: Under what rationales does the US restrict Chinese
companies here in this country and exterritorialy for US allies? Oversimplifying
for this blog space, does the US want to extend restrictions to “economic
security” as advocated by Rubio and others?

Recent history has demonstrated the unintended consequences of some US moves against Huawei beyond a national security and human rights basis. For instance, US restrictions on vital chips and the use of key Google services has crippled Huawei’s smartphone sales around the world. But as it turns out, thus far the real winner in this instance is another Chinese telecoms company, Xiaomi. Recently labeled the “World’s Hottest Smartphone Brand,” Xiaomi sold more phones in June than Samsung and in the second quarter of 2021 jumped past Apple to become number two in world sales. In addition to clever marketing, the company was aided immensely by escaping US chip sanctions and restrictions on its use of Google technology. In March, the Pentagon removed Xiaomi from a Department of Defense blacklist, pursuant to a federal judge’s decision that the government had not proved connections to the Chinese military.

Behind the details recounted above
is the fact that the Biden administration has failed to decide internally and
set forth in public the fundamental criteria for challenging Chinese state
capitalism and the Chinese companies that have thrived under it. Oversimplifying
again from the events described herein, to what degree will the US go beyond
sanctions and restrictions based upon national security and human rights
rationales? And to what degree will we go further and embrace the demands of Rubio
and others that “economic security” become a guiding principle, even if it
likely brings conflict with allies and existing international trade and
investment rules?

The post What’s up with Huawei — and what’s up with the Biden administration’s (endless) China policy review? appeared first on American Enterprise Institute – AEI.