Written by Andy Mok, Senior Research Fellow Senior Research Fellow of Center for China and Globalization, Commentator of CGTN
Pyrrhus of Epirus, a Hellenistic king best known for his self-destructive military campaigns, has been immortalized by the term ‘Pyrrhic victory’—a win so costly that it is actually a catastrophic defeat. His famous lament after such a battle victory, “Another such victory and we are undone,” captures the essence of a Pyrrhic victory and serves as a potent warning in today’s complex world of tech geopolitics. As we analyze the short-, medium- and long-term impact of American economic coercion against Huawei and China, more broadly, it’s worthwhile to consider whether this could turn into a Pyrrhic scenario – a short-term triumph that is actually a devastating long-term loss.
The U.S. ban on Huawei, announced in May 2019, marked a crucial pivot in the arena of tech geopolitics. This decision was made with a view to curbing the Chinese telecom giant’s escalating influence within the global Information and Communications Technology (ICT) industry. Undeniably, the move has had immediate and far-reaching impacts. However, in an environment as dynamic and resilient as the ICT sector, the ban didn’t merely constrain Huawei as originally intended. Instead, it has triggered a sequence of unexpected outcomes rippling across diverse fronts. These consequences, many of which are still unfolding, stretch beyond the company itself and bring into focus the broader global tech landscape.
In the aftermath of the U.S. ban, Huawei confronted immense challenges. The ban severed critical supply chain links and even raised questions about the company’s ability to survive. However, their 2022 financials demonstrate a remarkable turnaround, evidencing their resilience amidst these adversities. For example, revenues increased to 642 billion from 636 billion in 2021.
To overcome these challenges, Huawei embarked on strategic shifts that could redefine the global tech landscape. Not only did Huawei launch successful new business lines, such as autonomous vehicles and cloud computing, that are less susceptible to economic coercion, the company also developed an in-house replacement for Oracle’s ERP system. This showcases not only their formidable technical aptitude but also demonstrates their adaptability and readiness to tackle immense challenges in the rapidly evolving technological landscape.
Moreover, drawing from successful examples such as Amazon Web Services (AWS), Slack, and Google AdSense, Huawei’s in-house ERP system may emerge as a formidable competitor to Oracle. Much like AWS, which originated as Amazon’s internal infrastructure to manage and scale their online retail operations, Huawei’s ERP system could harness its experience in managing a complex, multinational technology business and bring that to market. This would cater to companies, governments and other entities looking for efficient, large-scale solutions borne from real-world usage.
However, the U.S. ban on Huawei triggered more than just an immediate crisis for the company and questions about the future of its key American technology partners; it ignited a chain reaction that has reverberated globally. Consider European telecom carriers, many of which heavily relied on Huawei’s competitively priced and technologically advanced equipment for their infrastructure, especially for 5G rollouts. According to Reuters, Vodafone has spent EUR200 million replacing Huawei equipment in its core network while BT has spent GBP500 million removing Huawei equipment from the UK and Deutsche Telekom spent EUR3 billion removing Huawei’s 5G antennas. French carriers have even sued the government over this. Bouygues Telecom said rip and replace would cost them roughly EUR82 million, and Altice France said it would cost them even more.The ban resulted in increased costs and delayed 5G implementation, creating a substantial upheaval in their strategic plans.
This ripple effect has not stopped at Europe’s doorstep. It’s also made waves in developing nations that relied on Huawei’s cost-effective solutions for their digital expansion. Now, they are left to scramble for alternatives, which may not only be more expensive but could also slow their digital transformation journeys.
Not surprisingly, the U.S. ban on Huawei unintentionally amplified the call for digital decolonization. By revealing the fragility of an over-reliance on the American technology stack, the ban has nudged countries to rethink their tech dependencies, thereby challenging the stranglehold of American tech powerhouses. For instance, India’s ‘Atmanirbhar Bharat’ (self-reliant India) initiative and Europe’s GAIA-X are fostering growth of domestic tech industries.
China, through its titan Huawei, is demonstrating robustness and adaptability, epitomized by their strides towards homegrown operating systems and semiconductor technologies. This progress suggests a reshaping of the global tech landscape, with new and traditional players striving for digital leadership.
In essence, the ban, while designed to constrain Huawei, has stirred a global shift towards digital decolonization. It’s not just a survival tale for Huawei; it’s a turning point signaling a potential rebalancing of global digital power.
While the U.S. ban aimed to constrain Huawei’s growth and influence, it seems to have inadvertently triggered a resilience that may culminate in a strategic upper hand for Huawei and, by extension, China’s tech industry. Much like King Pyrrhus, the U.S. might soon find that its ‘victory’ in curbing Huawei could come at a greater cost than anticipated. In the US, the government has allocated US$1.9 billion to replace Huawei telecommunications equipment in rural operators’ networks. Already though, applications for compensation of actual costs totalling up to US$5.6 billion have already been filed. The cost of removing Chinese equipment according to the Federal Communications Commission’s own assessment was estimated at US$5.3 billion, almost three times the budget Congress had set aside.
Rather than capitulating under pressure, Huawei is reforging itself in the heat of this crisis. Its drive to develop an in-house ERP system, a feat that few global companies have accomplished, is one such compelling signal of this resilience. This initiative, while meeting Huawei’s immediate need for a replacement to Oracle’s system, also harbors the potential to challenge Oracle’s market dominance if Huawei decides to commercialize its ERP solution, similar to the successes of AWS, Slack, and Google AdSense. Moreover, the backlash from the ban is no longer confined within the U.S.-China tech rivalry. It’s incited a global chain reaction, instigating hesitations about reliance on U.S. tech firms and inciting ambitions for digital self-reliance.
The U.S. stance on China does not necessarily reflect the views of American business. For example, Micron, a memory chip maker faces a significant loss of revenue and market share in China. Other U.S. firms, such as NVIDIA, are worried about losing access to the lucrative Chinese market, where they face increasing competition from local rivals. NVIDIA’s CEO Jensen Huang warned that the U.S. should be careful not to alienate China, which is a key market for the technology industry. He said: “If [China] can’t buy from the United States, they’ll just build it themselves.” Tesla’s CEO, Elon Musk, also demonstrated the significance of China for his company’s global strategy by visiting the country and meeting with top officials. These cases illustrate the complex and uncertain implications of the U.S.-China trade war for the tech sector.
In sum, while the U.S. may have initially appeared victorious with the Huawei ban, the long-term implications suggest a different narrative. This ‘victory’ might indeed be a Pyrrhic one, as the resultant strategic adaptations, global chain reactions, and the acceleration of digital decolonization may reshape the global tech landscape to the detriment of U.S. tech hegemony.