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Explaining the Huawei problem Explaining the Huawei problem
by Joseph Gatt
2019-06-18 08:33:16
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The United States is a liberal capitalist economy, one where there is a clear separation between government and private enterprise. In terms of global economies, this is the exception rather than the rule.

Most global economies are not capitalist economies but “nationalist” economies. That is in the US, when say, a US business gets in trouble in China or in India, the US embassy provides the US business a list of contacts and lawyers, mostly lawyers, who speak English and who are believed to be the best in the business. The United States does not intervene directly when the interests of US businesses are threatened abroad, unless it is US business which is threatened collectively.

huaw01_400But in China, or India, or many European states, or most states, when a business gets in trouble overseas, the embassy tries to lobby in favor of the business. Most embassies intervene by directly trying to arbitrate the dispute, or even threaten collective punishment and retaliation for US businesses if, say, a Chinese business is being cheated in the US. That is most states use an eye for an eye, and say, if an Indian business gets hurt, India hurts a US business based in India. If a European business gets hurt in the US, the European state will retaliate by hurting a particular US business.

In most countries, private businesses get all kinds of help from the government. In Europe it could be subsidies, in East Asia the government rarely gives subsidies but helps business grow with business intelligence, intelligence on competitors, or in some cases by nipping competing businesses in the bud.

You have countries like Japan and South Korea, both of which are nationalist economies, where foreign businesses are just not allowed to thrive. Land and production costs are excessive, the banking system is complicated, labor in unreliable, and the country lacks coordinate bilinguals that is a workforce which is comfortable using both Korean, Japanese and other foreign languages such as English. Other cultural factors such as rigid hierarchies within the workplace and lack of communication make foreign business difficult or impossible in Japan or South Korea.

When Chinese, Japanese and Korean businesses do business in the US, they tend to disregard the legal system, tend to do away with lawyers, and tend to hope for the better when it comes to respecting the local legal system. When Chinese, Japanese or Korean businesses in the US face a judge, they see that as a humiliation, loss of face, and as a breach of good relations between the US and China, Japan and South Korea. Remember that these are nationalist economies.

So when Chinese businessmen face a judge in the US, China tends to retaliate either by giving a US businessman in China a show trial or by sabotaging a US business. Now remember that the US and China have really been doing business since the 1990s, and this tit-for-tat has taken epidemic proportions.

So Huawei is just the tip of the iceberg. Huawei is to China what Samsung is to Korea, a national symbol almost equivalent to the national flag or national anthem.

Two possibilities. Either Chinese businesses get extraterritoriality in the US or US businesses get extraterritoriality in China as was the case in the 19th century. Or the US uses the same tit-for-tat logic and defends US businesses in China with the same fervor as the Chinese defend their businesses in the US. The third possibility, one which is very unlikely, would be one where China gets comfortable facing trials in the US, and that China adopt a fair legal system and only give trials if there are breaches of the legal code. 

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