The EconomistFebruary 15th 2020 Business 59I
f imitation isthe best form of flattery, one can only imagine the
mandarins in Beijing blushing bashfully on February 6th as they
eavesdropped on William Barr, America’s attorney-general, firing
the latest shots in the tech cold war. One of America’s main con-
cerns, he told a think-tank in Washington, dc, was Chinese domi-
nance of fifth-generation (5g) wireless technology by Huawei. It
had achieved this with totalitarian central planning. “As a dictator-
ship”, he said, “China can marshal an all-nation approach—the
government, its companies, its academia, acting together as one.”
Mr Barr’s response to this threat? Central planning, also involv-
ing the state, business and academia, but in support of American
goals, not Chinese ones. He said America and its allies should de-
cide which “horse we’re going to ride in this race”. That might
mean, he went on, that America’s government or its companies
should buy controlling stakes in Huawei’s European rivals, Fin-
land’s Nokia, Sweden’s Ericsson, or both—despite there being no
precedent for such a move (at least one that does not involve covert
operations). It also meant public and private sectors standing
shoulder to shoulder against China’s technological blitzkrieg.
Call it state capitalism, American-style. In full 5gpanic, Presi-
dent Donald Trump’s administration wants to co-opt not just other
countries’ national champions, but domestic ones, too. One focus
of attention is Qualcomm. The company, which is based in San
Diego and worth $103bn, is among the world’s biggest 5gchip-
makers. In 2018 it received unusual government support, when Mr
Trump blocked its takeover by Broadcom, then a Singapore-based
rival, on national-security grounds. As The Economistwent to press
on February 13th, it was due a second round of state-backed rein-
forcement, this time in a San Francisco courtroom where it is ap-
pealing against a landmark antitrust verdict. Its backer was Mr
Barr’s Department of Justice (doj).
Qualcomm’s relations with the government reveal a lot about
the way America is fighting the battle for global supremacy in tech-
nology. The Trump administration has two main national-security
concerns about 5g. The first revolves around the public telecoms
networks. It worries that kit installed by Huawei, which boasts a
30% market share in 5gand is in most places bar America, could be
used for surveillance. Huawei insists it will never be. But news re-ports this week said American officials believe it can access mobile
networks via “back doors” meant solely for law enforcement. No-
kia and Ericsson are among the next-biggest makers of 5gkit but
they lack Huawei’s financial firepower. A deep-pocketed American
rival like Qualcomm or Cisco could in principle bolster their bal-
ance-sheets. But they show no appetite for building fiddly, low-
margin 5gnetworks.
The government’s second worry is about micro-industrial net-
works, which is where Qualcomm could play a role. The adminis-
tration argues that within five years 5gcould become the backbone
of a vast economic system in which everything from cars to fac-
tories to fridges seamlessly streams limitless information. It fears
that a dominant China could jam them, monopolise them or suck
up all the data they produce for its own artificial intelligence. Qual-
comm hopes its modems used in 5gdevices, and the licences on its
patents, will enable customers around the world to build a web of
private 5gnetworks in this “industrial internet”. But it will have to
remain competitive against Huawei, which also makes modems
and licenses technology.
So far Qualcomm’s bets on 5ghave been ahead of the competi-
tion. But its ambitions have been undermined by repeated allega-
tions that it is a monopolist. It was in court this week appealing
against an antitrust verdict in a case brought by the Federal Trade
Commission (ftc) under Barack Obama. The ftc took aim at a lu-
crative licensing model that 5gcould further strengthen. It is a
sign of the Trump administration’s alarm about Qualcomm’s fu-
ture that the doj, supported by the Pentagon and the Department
of Energy, is throwing its weight behind the firm’s appeal—on na-
tional-security grounds. Hence the strange spectacle of two trust-
busting agencies battling each other in court.
The doj’s backing may bolster Qualcomm’s case. Much of the
national-security argument, though, is rather nebulous. The doj
argues that a verdict against Qualcomm forcing it to renegotiate its
licence fees with customers could hit profits and hamper its ability
to innovate, which would put America itself at risk. Yet the lack of
competition could be a bigger threat to innovation.
The case highlights a deeper question about America’s ap-
proach to 5g. How urgent is it to reduce China’s technological lead?
Some advise patience, and think much of the hysteria is a veiled
justification for protectionism. At present, 5gcapabilities are little
different from superfast 4g, and as yet the applications do not ex-
ist to make the most of the industrial internet. There is still time
for experiment and innovation. Alternatives to Huawei’s hard-
ware-heavy, vertically integrated networks are emerging. Compa-
nies in America, Europe and elsewhere are using their strengths in
software to build virtual networks that are more open and decen-
tralised. Qualcomm is eyeing such opportunities hungrily, and
plans to sell chips for virtualised 5gnetworks as well as devices.Chip on the shoulder
Mr Barr, who has mixed a career in government with one in tele-
coms, argues that all this would take too long to counter the clear
and present threat from China. The message is unambiguous. If
only America could play by China’s rules, subsidising domestic
champions and hobbling foreign rivals, it could win in 5g. That is a
counsel of despair. Qualcomm and other firms may happily lap up
government support. They would benefit, too, from an overdue in-
frastructure upgrade. But ultimately America’s greatest industrial
strength is its freewheeling spirit. Rewriting the rules of American
capitalism with Chinese characters would not help that at all. 7Schumpeter The Qualcommunist manifesto
American state capitalism will not beat the Chinese at 5g