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As EU Investigates Huawei, is China Gearing Up to Retaliate?

Image via Reuters

Image via Reuters

Like I said last week, it never seems to be good news for Huawei and ZTE, does it? The companies already stand accused in the EU of taking unfair subsidies from the Chinese government, and now the EU has opened second line of investigation in the form of an anti-dumping probe into the two Chinese companies.

Chinese Commerce Minister Gao Hucheng has already responded to the news, giving an interview to state wire service Xinhua in which he says the move would inevitably harm the interests of both sides and making finding a solution more difficult.

Elements on both sides are hoping to deescalate the situation with continued talks, but that looks increasingly unlikely, and the Telegraph quotes EU trade commissioner Karel De Gucht as saying: “We have already had three rounds of negotiations, but without any satisfactory outcome. It is better for the whole world economy to come to an amicable solution, but you need two to tango.”

But if a trade war is on the way, European companies may find they don’t like the way China does the tango. Late last year after ongoing negotiations seemed not to be shifting public opinion, China responded to American concerns about Huawei and ZTE and the potential security risk they pose by blasting American company Cisco in a full-on attack on the company in Chinese state media. It’s the trade equivalent of an eye for an eye: ‘if you smear our companies for security flaws, we’ll smear yours for the same thing.’

So if the EU really does levy trade duties on the Chinese telecoms and launch a full investigation into whether they’re violating anti-dumping regulations, is China likely to respond in kind? Very possibly. Several Chinese commenters on the Xinhua article have already pointed this out. “If you tax others, do you think they’re not also going to tax you in return?” wrote one. “No one takes a beating without trying to hit back,” wrote another. And there are several European telecommunications companies with interests in China that might be vulnerable to new trade duties or whatever other form of retribution China plans to bring to bear. Ericsson, Alcatel, and Siemens all have operations in China that could now be at risk.

The EU seems poised to fire the first shot, but whether or not the battle over Huawei escalates into a trade war will depend on where things go from there. At this point, China’s government is unlikely to ignore attempts to restrict or penalize Huawei and ZTE, but when it responds and comes to the aid of the companies it further reinforces the idea that they have closer ties to the government than they let on in public. Even so, China is unlikely to stop defending its largest and (in the case of Huawei) most internationally successful tech companies. And so, although no one really wants a trade war, one seems to be in the offing.

I wrote about this problem a while ago in the context of Huawei’s troubles with the United States; I think the mutual suspicion and distrust is so deep at this point that conflicts like this one are virtually inevitable. Huawei, ZTE, and China’s government have proved fairly unwilling to accept that other countries do have legitimate reasons to be concerned about some of their practices; at the same time, though, most other countries are so wary of China that any Chinese company looking to move abroad already has a significant competitive disadvantage. As time goes by, both sides seem to be willing only to dig further in, so I expect the high profile disputes like this to continue. That’s bad news for Chinese companies, and bad news for foreign companies wanting to do business in China.

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