The message coming from the US and UK governments and trade organizations today? Fear China.

They’re trying to drum up a 5G trade war, but US companies are getting hit by friendly fire.

First, the US Commerce Department today banned US companies from selling components to ZTE for seven years, according to Phone Scoop, though it didn’t ban ZTE from selling phones in the US.

Meanwhile, in the UK, the government told telecom companies not to buy ZTE infrastructure. Huawei infrastructure is fine across the pond, which is funny because the US government swore off Huawei infrastructure.

But three of ZTE’s US-based optical component suppliers are already getting battered in the stock market. ZTE phones also use processors and modems from San Diego-based Qualcomm, apps from Mountain View-based Google, and Gorilla Glass from New York-based Corning.

At least on the surface, our government is angry because ZTE didn’t sufficiently punish employees who sold gadgets from China to Iran, because those gadgets involved some US-made components.

Zoom out and you see the real reason why both of these things are happening now. It’s similar to why our government prevented Broadcom from dismantling Qualcomm. The UK government’s rationale isn’t about any specific threat Huawei or ZTE poses right now: it’s about not letting “China,” or anything Chinese, have too large a market share or too much influence in the tech industry.

Ironically for a company that government action just saved, Qualcomm, which now earns more than half of its revenues in China, is going to suffer from the sanctions against ZTE. Unlike Huawei, ZTE doesn’t make its own processors and modems, so it relies heavily on Qualcomm for chipsets. So ZTE is likely to shift more of its business to Taiwan-based Mediatek, already its No. 2 supplier, dealing a blow to Qualcomm.

China could also retaliate further against Qualcomm; its takeover of Dutch semiconductor firm NXP is being held up by Chinese regulators, which an analyst likened to a “hostage” situation in an interview with Reuters.

Google could also get hit. Various commentators are pointing out that the ban may prevent ZTE from using Google’s apps, leading the smartphone maker to turn to other alternatives from China or Europe.

But that’s what happens in a trade war. As borders close, you start taking damage from your own side’s actions. Qualcomm seems caught off guard by all of this; it declined to comment, while ZTE has not yet responded to a request for comment.

What’s Good for the Goose …

I don’t like this trade war, but it’s not like we aren’t doing anything the Chinese government hasn’t been doing for years. For a decade now, China’s censors have been slowing or blocking US-based internet companies so as to nurture and protect local Chinese competitors.

China’s Tencent and Sina Weibo benefited hugely from their government blocking Facebook and Twitter, and slowing a lot of Google services to a halt. Facebook’s WhatsApp is banned outright. Local app stores have flourished because Google Play was rendered unreliable.

The Chinese government has strict controls on which Hollywood movies can play in its theaters. It cracks down whenever users on a social network look like they might be forming groups that are too vibrant and aren’t controlled by the government. It’s far from a free-trade regime; it’s far from a free-anything regime.

Until now, the struggle between Chinese and Western technology companies for market share has also been a struggle of philosophies. China’s software, content, media, and social-networking giants have had real trouble extending themselves out of China because they’re so tightly adapted to the peculiar restrictions and culture of their own market. Its industrial and hardware firms have done better globally.

Perhaps that trend informs some of the Trump administration’s policies; it’s been passionate about saying it will protect old industries like coal, oil, steel, and automobiles. The airy-fairy world of Google’s software dominance, created by open minds and free trade, may not strike as viscerally in the Oval Office as the sight of Huawei’s cell towers going up on poles throughout Africa.

Cold War Innovation

Maybe it takes a cold war to get a stuck government to move. After all, it took fear of the Russians to send us to the moon.

The CTIA, our national wireless trade organization, released a report today about the “race to 5G” that’s also full of China fearmongering—in this case, to spur our government to auction more spectrum off for 5G.

The report, by Analysys Mason and Recon Analytics, strokes legislators’ egos while admonishing them that if they don’t release more “mid-band” spectrum soon, China will “win” the “race to 5G.” Looking at Analysys Mason’s chart halfway through the report, it looks like the US, South Korea, and China are all about equally aggressive when it comes to innovating on 5G deployment. But our wireless industry wants more spectrum and the ability to overrule local restrictions on small cell siting. A cold war looks like a good way to push legislators to get those things.

For what it’s worth, the CTIA is getting its money’s worth from the report. I’m watching headlines roll in from Axios and CNET saying that “China is winning the 5G race”—China as a singular, threatening entity, not as a place where many different companies, run by many different people, compete with each other.

The report’s recommendations, broadly, are right. America can create more jobs, more growth and more innovation by flipping more spectrum from old, inefficent uses like UHF television and older forms of radar, into new 5G technologies. I’d add that we also need more unlicensed spectrum bands like the 2.4GHz and 5GHz Wi-Fi bands, because those create the kind of ferment of startup innovation in which the US specializes.

But driving us there through a cold-war fear that cuts off potential sales markets and damages the open-mindedness that has led to America’s software leadership is one step forward, one step back.



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