Public Policy Case Study - Huawei US trade war Flashcards
Define popular commercial policies used by governments
Tariff - tax on imports
Quota - physical restrictions on quantity of imports
Subsidy - funding given to domestic producers to improve economics of domestic production or to encourage exporting
Explain the CHIPS and science act
An act that provides $52 billion for american research, development and manufacturing.
Also includes a 25% tax credit for capital expenses for manufacturing of semiconductor equipment
Incentive to secure domestic pay, create jobs and catalyse capital investment
Comes with restrictions, ensuring firms do not build facilities in China and other countries of concern
Explain Infant industry protection
Commercial policies to protect infant industry’s from foreign competition to be able to develop to become more efficient and produce at a lower cost
Explain Agglomeration cluster theory
Refers to the benefits of co-location of people and firms in reducing costs and advancing productivity, building on Marshalls industrial districts.
Give a background on Huawei as a company
Founded in 1987 as a phone switch manufacturer.
Financial backing and protection from the Chinese government led to Huawei establishing a competitive position in Asian, European, African and South American telecom supply markets.
In 2012, they surpassed Sweden’s Ericsson as the worlds largest telecom equipment supplier. Also diversified their product line to make smartphones, laptops and tablets, eventually gaining similar revenue levels as its cellular business five years on.
Explain the trade war caused by Huawei
As Huawei began to amass considerable market share in China and Europe, the company struggled with political barriers in the US.
In 2012, US intelligence had urged US carriers to avoid working with Huawei in building their networks, due to concerns of national security with issues of security lapses and intellectual property thefts.
This pullout of partnership occurred during a time of rising tensions amongst the US and China. China’s GDP has been growing at twice the rate of the US since the 1970’s. The country had also seen a growing ambition for global economic influence
Explain how the trade war developed when Trump was elected
The height of the trade war occurred when Donald Trump was elected president, who proclaimed China was “raping” their country. Meetings occurred between the two countries with the aim to increase Chinese exports in to the US in return for reducing the US’s trade deficit to China.
However in 2017 this changed when the Chinese Government passed a new intelligence law, meaning companies such as Huawei’s first responsibility would be to the Chinese government and align the businesses growth with the party’s political goals
Trump went a step further and implemented. 25% tariff on steel imports and 10% on aluminium imports to the US. China responded to this by adding 15-25% tariffs on American exports, starting a trade war.
Explain Huawei’s expansion in to Europe
Strained relations between the US and China meant Huawei pivoting its global expansion strategy to Europe and Asia, with their products possessing two things customers valued - camera and battery life.
Growth in Europe occurred with brand awareness in the UK rising to 63% in 2018, shipping 6.7 million phones to Europe with a 24.8% market share in the second quarter, surpassing Apple.
This growth in to Europe continued with Huawei selling its 5G in to Europe at 20% cheaper than the competition
Explain the US political pressure on the rest of the world over Huawei
The US began to increase pressure on its allies around the world not to do business with Huawei, particularly on 5G.
This worried thinking from US allies led to countries such as Australia, Japan and Taiwan banning Huawei in 2018.
This pressure continued from the US, with the government threatening to stop intelligence sharing with Germany unless they banned Huawei. This pressure was more intense with the UK, due to its membership in the Five Eyes intelligence group.
