A panel of experts at the Council on Foreign Relations on Tuesday weighed in on policy implications for the U.S. and its allies after the U.K. government—in a reversal of prior policy—said it would not allow equipment made by China’s Huawei in the expansion of its 5G wireless telecom infrastructure.

“Today, we think they took the right step in the correct direction and we are looking for them to provide additional leadership around the world,” said Robert Blair, U.S. Commerce Department Director of Policy and Strategic Planning and former White House Special Representative for International Telecommunications Policy, speaking on a remote panel based in New York.

Blair said that the U.S. national security implications of 5G far outstrip previous generations of wireless networks, as technology moves away from simple communication to the support of entire economies.

The panel cited figures from the American Enterprise Institute that predict 5G will support 3 million U.S. jobs and $1 trillion in economic activity by its fifth year of full deployment.

In this environment, traditional spy methods (such as phone or network surveillance) are mostly irrelevant, as these can be bypassed through the use of encryption technologies (or accessed through other means).

More troubling is the ability of 5G-dominant actors to disrupt and control an entire nation’s economy by gaining control of its transportation system, or (for example) its ability to transport energy around a grid securely and safely.

Panelists concurred that intelligence agency access to telecommunication infrastructure is something they would expect China’s government to “make use of.”

The Numbers

Adam Segal, Director of Council on Foreign Relations’ Digital and Cyberspace Policy Program and Chair of its Emerging Technologies and National Security program, said that hard numbers on the state of China’s 5G buildout point to a solid lead, compared to the U.S. and its allies. But even this picture may be overstated or imperfectly understood.

The country is expected to have installed 600,000 5G base stations by year end, with 10,000 stations being installed per day. By 2025, the country is aiming for between 5 million and 5.5 million base stations nationwide.

According to figures cited by Segal from China’s Ministry of Industrial and Information Technology (MIIT), as of June 2020 China had 36 million 5G end users, on track for 125 million users by year end for a penetration rate of just under 10%. In addition to its scale in numbers, China has exhibited more cohesive policy messaging—which until very recently has been absent from U.S. positioning in the area.

With China’s officialdom keen to elevate 5G leadership as the symbol of the United States’ inability to damage or punish China, Segal noted that so far this year, China Telecom, China Mobile, and China Unicom have already invested $25 billion in 5G development, with projected investments between now and 2025 expected to total around $160 billion.

Besides its investments in network hardware and base stations, Segal said, China is increasingly looking to ramp up its strategic innovative positive in the emerging Internet of Things (IoT). While Tuesday’s announcement out of the U.K. is globally significant, Segal said Huawei still has 91 live contracts to roll out 5G equipment in other countries.

While its early pitch to foreign markets was primarily driven by cost undercutting—estimates hold that Huawei can provide equipment at one-third of the price, thanks to state subsidies—Segal said Huawei has since made inroads in reliability and technology advancement, and is significantly moving up the value chain to rate among the top five R&D spenders globally (alongside Apple, Google and the like).

Huawei’s advance also benefited from U.S. policy and private sector failures during the 1990’s. Some examples: under-prioritizing U.S. domestic manufacturing capabilities, being too slow to auction midband spectrum (which ultimately drove 5G development), and failing to pursue strategic M&A activity in the telecom sector.

“Untrusted equipment”

Mr. Blair cautioned against relying on these numbers alone as a guiding metric for China’s competitive position.

“If you’re looking at base stations and users, they (China) control nearly half the global market. It’s hard to overcome that lead,” he said, adding that the U.S. is not striving just to spread 5G domestically and across the Western hemisphere, but to preserve the global system that protects core principles of freedom. These include the right to privacy, to freedom from state surveillance, and to free expression across internet systems without fear of being driven out of a country, as happened with the National Basketball Association in its free-speech clash with the Chinese government in 2019.

A more telling figure, he said, is how the adoption rate away from “untrusted gear” is changing in areas outside of China. This change rate has been increasing dramatically over last 3 years. Per Blair, this suggests that Western democratic principles are beginning to win the race.

A Rethink

Blair added that a more philosophical misstep—at the level of the U.S. government and of its political parties—was in “viewing [5G] as a free-market problem for too long.” He said that even this realization had only become “ripe” in the past six months as many countries forced to respond to the various challenges of the covid-19 epidemic had taken a harder look at economic security.

Blair added that a more philosophical misstep was in “viewing [5G] as a free-market problem for too long,” and that even this realization had only become “ripe” in the past six months as many countries forced to respond to the challenges of covid-19 taken a harder look at economic interdependencies.

In Segal’s view, this rethink came about in part after U.S. sanctions on Huawei threatened the integrity of its supply chain. Against that development, and a recent deterioration in U.K./China relations due to Covid-19, British intelligence may have concluded that they could no longer assess Huawei’s supply chain security.

While these two factors may be brought to bear Germany, and possibly cascade in other Western countries, he said it would be unlikely to play out in emerging markets that are less swayed by issues of supply chain security.

To that end, Blair said that the U.S. position doesn’t see Huawei as being “a problem in itself,” but, rather, how it’s used by the Chinese Communist Party: of Huawei as a symptom of the underlying drive for spreading authoritarianism outside of China:

“We’re not treating Huawei as a commercial problem that can be mitigated but as a national security problem that must be beaten.”