Paul Bracken on the U.S. Action against Huawei

When the U.S. government brought criminal charges against Chinese technology company Huawei, it signaled an escalation in the political and economic tensions between the world’s largest economies, with multinational companies caught in the middle. We asked Prof. Paul Bracken, an expert on global competition, what’s likely to happen next—and how companies can develop strategy for volatile times.

How big of an escalation is the U.S. action against Huawei? What reaction should we expect from China?

This is a big jolt—not only to China but to the whole idea of a U.S.-led, cooperative world trading system. What’s interesting is that China hasn’t reacted in a big way as yet. They’re totally surprised by the U.S. move—and so is the rest of the world. But China will respond. It makes their One Belt Asian infrastructure investment initiative look really prescient, as this program opens new export markets for them in Southeast Asia, South Asia, the Middle East, and East Africa.

What are the strategic implications for U.S. multinationals who operate in China or use suppliers there?

U.S. multinationals in China are effectively hostages. If there are further U.S. crackdowns, I have no doubt they will feel China’s anger. More broadly, multinational corporations will have to look “above the business” to analyze their strategic futures. The only way to do this is to embrace new methodologies like scenario planning, alternative futures, environmental scanning, and role playing business war games. We have to get above the way most strategy has been taught in terms of industry structure to find ways to bring in other factors like social trends, technology, and nationalism.

What is the larger goal of the U.S.? How does this legal action fit into the trade and military tensions between the U.S. and China?

The larger U.S. goal is unchanged since the 1990s: to force China to become a more liberal country that moves toward democracy and the rule of law. This is a worthy goal, to place China in a golden straightjacket of international law, the WTO, business practices, and interdependence with the world economy. But like the U.S. wars in Afghanistan and Iraq, it’s not going to work. The world economy, and China, are too big now. Look at the way the U.S. formed an anti-China club, to get Canada, Germany, the UK, the Netherlands, and Japan to boycott Huawei and ZTE. If Beijing gives in to this, they can expect a lot more from this U.S. “club.” The word club is used here in two senses: It’s a group formed for a political or social purpose: to reign in China. And it’s a stick, a cudgel, used as a weapon. We live in really interesting times.