Economic Openness and National Security Can Go Hand in Hand

Niccolo Fantini // 23 November 2020

The Trump administration has engaged in an all-out war against Chinese technology and its exports to the US, with the President recently signing off executive orders against TikTok and WeChat. The Chinese giant Huawei has been the main object in these rows, with US regulations heavily impacting Huawei’s supply-chains and operations. These tensions have reached the shores of the Old Continent, where the rolling out of the new 5G infrastructure has prompted widespread security scares.

Sweden has been one of the latest countries to ban Huawei and ZTE from its 5G systems. While the security threat posed by Chinese business-practices and data-use cannot be minimized, these broad-brush defensive practices that border on trade protectionism and isolationism should not be encouraged. The solution should instead involve an open market for technologies, with a targeted identification of security threats across the entire competition to create a level-playing field. This should be supported by the establishment of a more technology-friendly regulatory environment that supports local competitors, thus raising overall security and efficiency.

The West’s strategy to tackle the security issue should be based on three pillars. First, there ought to be a clear and rational differentiation between ideological, propagandistic motives and what is indeed the best option for the economy and society. There is no doubt that Chinese firms like Huawei are operating in a way that contravenes the West’s key security and privacy standards. It is also true that Chinese tech firms enjoy a very close relationship with the Chinese Communist Party, whereby it is often difficult to distinguish who is behind certain decisions. These dangers are legitimate and should be investigated seriously by dedicated judiciary and regulatory bodies such as the European Data Protection Board to highlight specific areas of concern and mandate targeted improvements. Considering the global reach of firms like Huawei or Tencent, it would be convenient, albeit not necessary, to pool priorities and aims of investigations at a supra-national level.

At the same time, it has become obvious how geopolitics and ideology have infected the debate, with the UK recently caving to US pressure to fully ban Huawei from its networks. The second pillar thus rests on the realization that, in the words of Emmanuel Macron, providers of technology like Huawei are crucial in developing national ‘ecosystems’ that will spark local growth in this sector. The benefits of advanced network infrastructure for the economy and society is widely recognized, and there have already been claims of how the exclusion of cheap and convenient Huawei contributions may damage local technology providers and manufacturers, especially by disrupting internationalised supply chains that are deeply integrated. More local repercussions are also to be expected. In Sweden, for instance, likely beneficiaries of the ban will be the national champion Ericsson and neighbouring Nokia. Network providers and other manufacturers that rely on 5G infrastructure will instead face rising costs and restricted choices. As Covid-19 ravages economies and governments are desperately looking for ways to revive growth, this should not be an additional hurdle for recovery.

On the contrary, keeping markets open to these exporters while ensuring that security and privacy standards are upheld will benefit local competition, raise overall standards and provide bargaining power to push structural reforms within Chinese companies that are often thriving on unfair market practices. Advocates of unconditional exclusion of Chinese technology need to face the fact that companies like Huawei are deeply enmeshed and integrated into Western technological ecosystems. They also end up creating unfair and inefficient competition at home by favouring brands that, given Huawei’s edge in the market, had already shown signs of weakness. Surely this is not a politically wise way to fight against the CCP’s interventionist regime. It may even backfire as these approaches do not solve the security issue and instead merely shift Chinese attempts to infiltrate Western systems to other means.

Furthermore, adopting strategy of targeted regulation and control of security standards on the German model will level the playing field for all stakeholders and lift security standards in general. Such a solution would call on governments to promote competition in this sector, not through mercantilist subsidies but instead by easing up non-security related regulatory and fiscal constraints that limit the productivity of R&D and the implementation of new technology. This will force Chinese competition to adapt to local standards and in turn push for political reforms at home. The message will be clear: you can either play on our field and profit or withdraw and loose out.

The current geopolitical tensions between the West and China should not be allowed to negatively impact the beneficial development of technologies and infrastructures that promote growth and well-being for everyone. The US-led strategy of imposing outright bans on Chinese corporations will not address legitimate security concerns, will damage local operators and affect global supply chains.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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