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'You May Not Be Interested in War, but War Is Interested in You' Options
#1 Posted : Thursday, March 14, 2019 6:18:09 AM

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'You May Not Be Interested in War, but War Is Interested in You'
By David P. Goldman March 7, 2019
chat 52 comments

That witticism is attributed to the Bolshevik leader Leon Trotsky, and the same applies to industrial policy, that is, government investment in industry. As a free marketeer I abhor industrial policy, except as a war measure. This is war, of sorts. I don't think the United States and China will start shooting at each other at any time in the foreseeable future, but that isn't the way this war will be fought. China is striving to dominate game-changing technologies starting with 5G broadband, but also including quantum computing, quantum communications, artificial intelligence, and others. If it succeeds, the United States will be poorer and weaker, and our alliances in Europe and Asia will crumble. We will resemble post-imperial Britain, a second-rate former great power.
The American public became aware this year of what China has been shouting from the rooftops for years. Its flagship telecommunications firm Huawei spends $20 billion a year on R&D and now leads the world in fifth generation (5G) broadband. With download speeds perhaps 2,500 times as fast as 4G LTE broadband, 5G makes possible an entire range of new technologies: robotic controls that communicate with each other, highly-coordinated drone swarms, driverless cars, augmented reality, big data processing, and many others.
No American company offers 5G systems. Two Scandinavian companies, Nokia and Ericsson, offer a costlier and inferior alternative, by all accounts (Huawei's R&D spending is double their combined budget). The Trump administration has demanded that our allies keep Huawei out of 5G rollout, without success. Germany's Economics Minister Peter Altmaier has warned that excluding Huawei would delay 5G rollout by years and add billions to the cost. The dust hasn't settled, but the likely outcome seems to be a lot of egg on our face and a lot of sales by Huawei.
Huawei meanwhile is suing the U.S. government for banning purchases of its product by government agencies, claiming that the order violates due process. Controlling telecom hardware and software gives any country a window on information flows, and the Trump administration's concern is entirely legitimate. Intelligence agencies, though, always exaggerate the value of data secrecy. Secrecy doesn't win wars; logistical superiority in depth wins wars. The fact that no U.S. company has elected to compete with Huawei gives China a huge head start in civilian as well as military technologies. That's the first time a Chinese company has leapfrogged the U.S. in a critical technology.
Various solutions have been bandied about, including the idea that the U.S. government should build a national 5G network and rent space on it to telecom companies. There's nothing, in theory, wrong with that approach, which is promoted by investors with ties to the Trump administration. Mexico did that, and opened its red compartida (shared network) a year ago; eventually, the government-backed network will make broadband available to most of Mexico. The problem is that Huawei is building the broadband network, with some help from Nokia. That's right: Huawei is building the 5G-capable systems on our border. That scares me a lot more than illegal immigrants. The U.S. government can spend scores of billions on a broadband network, but who is going to provide the systems? No American company is in that business.

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