Revisiting the U.S.-China 5G Race: New Sheriff, Same Stakes
Photo Source: The Fast Mode
The Biden Administration ushers a transition in United States’ foreign policies, most of which overturns Trump’s position in the international arena. On his first day, Biden renewed American commitment to climate change initiatives, rejoined the World Health Organization, and reversed Trump’s immigration policies. While there will be several departures from the previous foreign policy directions, some things will remain the same.
As noted in the recently issued Interim National Security Strategic Guidance, the U.S. will maintain a tough stance on China, but with more focus on not alienating friends, partners, and allies in the process. During his Senate confirmation hearing, Secretary of State Anthony Blinken said that the previous administration was “right” in its approach towards Beijing and indicated its plan to have an alliance-based strategy.
One key technology area that will continue to be of importance to the U.S. and China will be the race towards 5G dominance. The 5G rivalry, and the crackdown on Huawei specifically, intensified in 2019 when the Chinese tech giant was placed on the U.S. Department of Commerce’s Entity List, effectively banning it from doing business with U.S. companies. As expected, Biden recently continued this hard line on the Chinese technology firm by issuing new restrictions to further limit Huawei’s supply of items for its 5G devices.
With the new U.S. administration in power, it is important to revisit the stakes at hand, and why 5G will remain a significant aspect of the U.S.-China relationship, especially considering the impacts of COVID-19.
High Economic Stakes and the First Mover Advantage
5G refers to the fifth-generation mobile wireless technology delivering high-speed and ultra-low-latency data connections. It is expected to power the “internet of things” era where data will seamlessly connect people and devices. 5G is seen as a foundational technology that will support new forms of innovation across sectors – from agriculture, services, to manufacturing – bringing in significant economic benefits. The World Economic Forum states that 5G will enable the Fourth Industrial Revolution and will unlock opportunities to increase productivity and enhance competitiveness. An IHS study commissioned by Qualcomm estimates that 5G will enable $13.2 trillion of global economic output and generate 22.3 million jobs by 2035.
For U.S. and China, there is great interest in who gets to dictate the rules of the game. Historically, the first movers in wireless technology enjoyed major economic benefits. Europe saw the rise of Nokia, Siemens, Alcatel, and Ericsson as they led 2G development. Japan also saw its wireless industries flourish as the early adopters of 3G. As noted by research firm Recon Analytics, America led the 4G development which in turn boosted its economy by nearly $100B and resulted to an 84% increase in jobs. U.S. leadership in 4G enabled it to develop succeeding innovations, including the mobile app economy and the dominance of American mobile operating systems of Apple and Google.
In addition, setting 5G standards will be of utmost importance to both economies. Global technology standards will not only determine technical specifications and ensure interoperability, but will also decide how money will flow throughout the 5G industry. Companies that dictate the industry benchmark will receive royalty payments from other firms who want to participate in the ecosystem. As a result, Chinese actors are dedicating significant research and development efforts towards patents and jockeying for influence within standard-setting bodies.
Geopolitics and the “Sticky Power” of 5G
The 5G race, however, is not just about technology leadership and economics. At the heart of it, 5G poses opportunities to advance the geopolitical interests of the two great powers. For example, 5G leadership fits snugly into the Digital Silk Road (DSR), the global information highway that China is building as part of their Belt and Road Initiative (BRI). With 5G technology as the backbone, China can generate “sticky power” by bundling together several innovation sectors of participating BRI countries. With control of the foundational technology, Chinese tech giants could secure future innovation projects such as smart cities, e-commerce, autonomous vehicles, next generation communications, and satellite networks. These are all important sectors for any country and will certainly increase China’s leverage in bilateral dialogues. Observers also fear that this may grant China the power to allow access only to select companies they prefer and potentially lock out competitors. Considering there are about 70 “corridor countries” participating in the BRI, comprising 1/3 of the world gross domestic product and involving 60% of the global population, it is not difficult to imagine why the U.S. is wary of China’s advancement in 5G technology.
As a response, the Trump administration implemented the “5G Clean Network” initiative as championed by Former Secretary of State Michael R. Pompeo. The program encouraged allies to ban untrusted telecommunication providers in building next generation 5G infrastructure, primarily warning against Chinese equipment. While Huawei and ZTE deny these claims, fears from the U.S. side stems from China’s 2017 National Intelligence Law, which the U.S. believes could compel companies to cooperate with Chinese intelligence operations. The U.S. Federal Communication Commission (FCC) declared Huawei and ZTE as national security threats and the actions against Chinese technology firms have also received bipartisan support from both the Democrats and the Republicans.
The 5G Dilemma in the Face of COVID-19
What complicates the 5G rivalry even more is the impact of the global health crisis. COVID-19 has accelerated digital transformation and heightened the urgency of reaping the benefits of next generation technology. As the pandemic drags on to its second year, more and more countries are desperate to rebound from the economic slowdown. The promise of 5G technology, coupled with competitive Chinese prices, can entice countries to prioritize economic interests over the national security warnings of the U.S.
This makes developing countries the next frontier of the 5G race between the U.S. and China. In a 2019 study by Oxford Economics, restricting a key supplier of 5G would lead to an increase in investment costs of between 8% and 29% over the next decade. The restriction also means delayed access, a slowdown in the expected benefits of the new technology, and reductions in national GDP projections. While developed countries, and those who handled the coronavirus crisis relatively well, may be able to absorb the costs of delay of rolling out 5G, other countries may not have the luxury to do so. A huge challenge for the Biden administration is to offer viable alternatives to 5G Chinese equipment, especially to its allies in the developing world who may be hard-pressed to lean on Chinese technology to jumpstart its economy.
Given the economic and geopolitical importance of 5G, coupled with the added layer of complexity due to COVID-19, the Biden administration will continue to contain Chinese influence in 5G. The U.S. felt the benefits of being able to lead in wireless technology development, and it has no interest to be relegated to the sidelines. There might be a new American sheriff in town, but the stakes in the 5G race remain the same.
Keith is a government affairs professional with interest in international relations, technology policy, and cybersecurity. He is currently completing his Masters of International Affairs degree at the National University of Singapore's Lee Kuan Yew School of Public Policy. Prior to moving to Singapore, he was an Economic Specialist at the U.S. Embassy Manila. He was also a Research Specialist at the Philippine Institute for Development Studies early in his career. On his off days, Keith is passionate about storytelling through improvisational theater.