After the Huawei and ZTE bans, what’s next for China trade policy

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The administration, prompted by Congress, has banned sales of telecommunications gear from Chinese companies. Now the question is: Should anything come next, when it comes to Chinese products that might have national security implications? The Federal Drive with Tom Temin has spoken on the matter with FCC Commissioner Brendan Carr. In this interview, his guest is Matt Turpin,...

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Best listening experience is on Chrome, Firefox or Safari. Subscribe to Federal Drive’s daily audio interviews on Apple Podcasts or PodcastOne.

The administration, prompted by Congress, has banned sales of telecommunications gear from Chinese companies. Now the question is: Should anything come next, when it comes to Chinese products that might have national security implications? The Federal Drive with Tom Temin has spoken on the matter with FCC Commissioner Brendan Carr. In this interview, his guest is Matt Turpin, visiting fellow at the Hoover Institution and former China director at the National Security Council.

Interview transcript:

Tom Temin: So there is this ban in place. And I think it’s been a long time building the Huawei ZTE ban. And it was sort of policy by executive order. And now it’s legal statutory thing that’s happened. But should that be where it ends? What else does the government need to do do you feel to make sure that Chinese products that are a national security threat, if not bought directly, which I think you can’t do under regulations anyway, don’t make it somehow into the supply chain?

Matt Turpin: First of all, the statute has been there in certain portions for quite some time. Right. So we go back to late 2018. In the passage of the National Defense Authorization Act, Section 889, prohibits the U.S. government from contracting with Huawei, ZTE, Hikvision. It then a year later, the provisions of that same statute prohibits the U.S. government to contract with companies that are contracting with those companies. So the action by the FCC is really a sort of a broader alignment of a sort of a lattice of statutory and regulatory actions, that prohibits those companies from operating inside the United States, and now, essentially prohibiting the importation of those goods into the United States. I think that’s, that’s an important sort of thing. And obviously, this goes back to like, 2012, as Congress started to look into this problem, and really began to take actions to limit the major telecommunications operators from taking on this equipment into their networks.

Tom Temin: Yeah, there’s really two issues we should point out. One is what is happening in the general economy. And the latest ban is nobody can have this because telecommunications is so pervasive, what the government itself can buy. That’s a little bit more clear cut.

Matt Turpin: Right. And, of course, the whole provisions around making sure that that if you want to do business with U.S. government, you can’t be doing business with these companies, means that for an awful lot of companies across the United States, they’re simply not going to be buying that equipment, and are not going to be associated with it like this, the savings they would get from buying those things does not offset the giving up of potential government contracts.

Tom Temin: Right, because next we’re going to hear from someone who has done some research, FOIA research. And there are direct Chinese drones from a large manufacturer that makes good stuff. I mean, the stuff that coming out of China is not junk, it’s very high end gear. But these are drones that the Army has banned, for example. And I think a couple of other departments have banned because of the surveillance and reach back capabilities potentially in them. So what should happen there, do you think?

Matt Turpin: Yeah, so I mean, I think the administration and Congress is working through a number of different sort of tools and levers they might use to reduce our vulnerabilities yet still gain access to the kinds of technology we want to gain access to right. So I think there’s a balancing act going on. I suspect that what we’ll see is a similar set of actions that we’ve seen in this area. Now, arguably, it’s debatable whether the FCC has jurisdiction here, it might over these sorts of things in terms of the broadcast ability of these drones, but I think that’s still is being worked out. And of course, this is just sort of how the messy aspects of our divided government sort of works. It just takes some time to figure out what are the appropriate authorities to use.

Tom Temin: I guess, if the prices were equal for Chinese and E.U. say made or American made products, there would be no choice whatsoever. No one would ever knowingly choose the Chinese if it was the same price. But that’s the unstated part of a lot of these debates, is that the Chinese stuff comes in so much cheaper than what is made elsewhere.

Matt Turpin: Yeah, so I think sort of where we were before some of the actions by the Trump administration and the Biden administration on blocking the PRC’s access to advanced chips, is that the sort of the three variables right cost, quality and sort of scale, right production scale for companies, you know, before essentially two of those were equal or beneficial for the PRC quality as in sort of for telecommunications gear we’re talking about everyone is building to a 3GPP standard, right? Whether that’s 4G or 5G equipment is actually the same. It’s meant to be the same because it’s built on a standard that is globally recognized right. So therefore, what people are competing on is on either scale of production, which the PRC has enormous scale to produce electronics, and then on cost, which in many cases, the PRC companies were producing things that 20, 30, 40% below the cost of manufacturing for other places, right. And that would make it incredibly effective. That’s some actions that the U.S. government has taken is that it’s gone after that quality side. So if PRC can’t get access to cutting edge chips, that’s what makes those things competitive. That’s why we’ve seen a number of the contracts for 5G for Huawei fall through is because they can’t actually build things, network equipment to the 5G standard, because they can’t include some of the chips that the United States could block. That’s sort of what’s changing here. And I think that’s what’s to keep in mind. So therefore, it doesn’t matter sort of, you know how cheap they make it, you’re not going to buy a 5G base station from a company that actually can’t produce a 5G base station.

Tom Temin: Got it. We’re speaking with Matt Turpin. He’s a visiting fellow at the Hoover Institution and former China director at the National Security Council. And how far down does this go with respect to do you think federal policy and federal action? Because if you think about the market for home surveillance, and small business surveillance, everybody’s got these doorbells that look at you, and you can’t watch a cable network without seeing surveillance video of this or that happening? A lot of that is made in China, the consumer grade stuff coming in. Is that or should that be of concern to the federal government? Or, you know, you’re speaking from the standpoint of Hoover, which is kind of a free market oriented institution and that’s where it gets a little fuzzy, though, doesn’t it?

Matt Turpin: Yeah. So I think this sort of the space of sort of the Internet of Things, right, we’re watching sort of everything be connected, your refrigerator tells you that you’ve run out of stuff, and therefore it adds it to your shopping list automatically, right? Those, you know, the Ring doorbell in which, you know, a video transmission of what’s at your front door is transmitted to you anywhere in the world, which means that it’s being transmitted. Therefore, while you believe that you’re the only one who could potentially see that, certainly the manufacturer of that certainly could continue to have access to what that is. Those things I think, are concerning. And this is sort of the broader arguments around and discussions around privacy, like what sort of national privacy laws should we be having in place about personal data. So these things are all obviously, sort of in flux. I suspect that we’re going to continue to move towards regulations that are around protecting individual privacy, and protecting data, particularly data that flows to hostile nation states that have a demonstrated track record of seeking to use things against us and undermine the United States and our allies. And so therefore, I suspect that we’re going to continue to see this move. I think this space of Internet of Things is likely our next area. But you know, there’s going to be an awful lot of debate, right? I mean, the other debate is, you know, the PRC makes some of the best gear in this space, right? For a smart home, it works. And it’s relatively less expensive. That’s going to be an argument about, do people really want it? Are they willing to pay more? Or is this something that is a bit superfluous? And we don’t really need these kinds of things. All of that is a debate that’s going to sort of unfold I think, over the next few years.

Tom Temin: In some ways, this almost touches on the TikTok debate, because that is really the biggest Internet of Things element in the United States, and people download it free.

Matt Turpin: Yep. And increasingly, we’re watching the 18 to 26 year old age group, according to a latest Pew poll, the 30% of them get their news from TikTok. So rather, it’s simply being viewed as sort of this entertainment platform for short form videos, increasingly, folks identify this as a news source, which, you know, arguably, if this was a television station or radio station, foreign ownership, foreign control and foreign influence over it, we would have regulatory actions to be able to take a look at this. Unfortunately, we’ve allowed the actions within sort of this carve out of the internet space to sort of be not subject to these rules, which in a variety of things for social media platforms we’re wrestling with in a number of different places. And so I think this is coming to a head, I think we are likely to see continued action against TikTok and its operations in the United States. It just makes to me no sense that we would allow a foreign owned, particularly by the PRC, a platform used to manipulate and show through algorithms, directed information to people with no way for us to be able to understand what’s happening there. And a history of them showing and censoring things that are sensitive to the Chinese Communist Party. You cannot find videos about the protests happening in China on TikTok, right. So this would suggest to me that this is not exactly an open platform in which free ideas are shared. It’s shaped towards Beijing’s preferences.

Tom Temin: So a lot of trade and other policy area development yet to come you feel.

Matt Turpin: Yeah, I think so. I mean, you know, we watch this happening. Sen. Cornyn (R-Texas) and a few other members of the Senate held a hearing, I think last week or the week before looking at digital trade policy and certainly TikTok came up, but many of these other areas right so So I think we have to keep in mind that the PRC refuses to allow this sort of free access on data and those sorts of things. So we’ve essentially created a one way valve where Beijing gets full access into our market and can take data and move it out. And yet they restrict it on their end. And I think what we’re going to move to is a greater degree of reciprocity. Of course, it would be preferable if everyone observed a sort of a free market and allowed sort of open competition, and a fair interpretation of rules that would be economically more efficient. But that is simply not the world we live in. We live in a world in which the second largest economy in the world controls its economy and manipulates it in ways to undermine us. And that is simply just, you know, us just not taking action anymore, I don’t think is a realistic prospect.

 

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