Cogeco Inc. chief executive Philippe Jette seemed on his way to telling me that Prime Minister Justin Trudeau should ignore the Donald Trump administration and give China’s Huawei Technologies Co. Ltd. the green light to help build Canada’s 5G wireless system.
“A lot has been said about security issues, but there are ways to control what goes through a network,” said Jette, who oversees such a network, one that serves some 800,000 broadband customers in Central Canada and another 450,000 south of the border. “It’s going to be more difficult here than in the United States where Huawei is not as involved in the academic side, generating research and creating jobs. They have a number of employees here in Canada, so we need to have a balance in all of this.”
But then he stopped short of giving Huawei his full endorsement.
“I’m not going that far,” Jette said at the Canadian Chamber of Commerce’s economic summit in Toronto last week. “I need to be convinced that we can control security, privacy in a way that actually protects Canadians. Having the right view, and controlling what goes through the network, is not an easy task.”
You will no doubt have heard a lot about “uncertainty” over the past few years, how confusion over trade, regulatory and security policies are choking the life out of the animal spirits that give economies their entrepreneurial verve. Jette’s thoughts are what this uncertainty looks like up close.
Shopping for 5G technology should be straightforward for an executive of a profit-seeking enterprise. Huawei’s gear is the best on the market. The company spent US$15.1 billion on research and development in 2018, more than Sweden’s Ericsson AB and Finland’s Nokia Oyj, the other two significant 5G providers, combined, according to the Financial Times. If the Communist Party of China was a benevolent force, Ericsson and Nokia might not be in the game, given that Huawei’s kit is also the cheapest.
“It’s (cheaper), it’s a factor,” Jette said. “With the size of the telecom players in China … they have millions and millions and millions of customers, hundreds of millions of customers, so they operate and manufacture at a scale we won’t ever see in Canada. They play on a different scale. They can manufacture parts at a reduced price.”
But the Chinese regime isn’t a benevolent force.
A government that seemed focused on ending mass poverty when it joined the World Trade Organization in 2001 appears to have a new goal: joining the U.S. as a “great power” that does what it wants. China routinely punishes those who cause offence, which Canada has learned the hard way over the past year.
“It would be a critical mistake for Canada to agree to allow a company which is beholden to the Chinese regime to have potential control over critical Canadian infrastructure,” said Charles Burton, a senior fellow at the Macdonald-Laurier Institute, an Ottawa-based think tank that tends to promote hawkish stances on security issues, and a former diplomat in Beijing during the 1990s.
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Scary, but this argument loses when put through cost-benefit analyses. Yet most countries seem to think any security threat can be managed. Australia barred Huawei from its 5G build in 2018, and the U.S. did so last year. New Zealand blocked one of the country’s two major telecommunications companies from using Huawei’s 5G gear, then indicated that it was open to a modified ban. The United Kingdom last week decided that British telecommunications companies could use Huawei equipment only in the periphery of their networks, and the European Union issued similar guidelines.
Canada is one of the last on the fence, and the delay is complicating the shift to the next-generation wireless network, which will serve as the nervous system of the digital economy. BCE Inc. this week said Nokia would be its “first” 5G provider, suggesting that it has decided to proceed with pricier tech, and that it is holding out hope it will eventually be able to get its hands on some Huawei equipment.
Burton and others who would slam the door on Huawei emphasize privacy, but their argument really is about choosing sides in the coming struggle between Washington and Beijing. “If you want to be linked to one system, you want to be with the U.S.,” Ian Bremmer, founder of Eurasia Group, a political-risk consultancy, said in an interview at the chamber event in Toronto. “Does Canada want to be part of anything with a Chinese chip?”
But the U.K. compromise suggests Canada has a choice. The British government, suddenly alone in the world now that it has finally broken with the EU, desperately wants a free-trade agreement with the U.S., but not so much so that it was prepared to alienate the most important power in Asia. Like the U.K., Canada’s interests are best served at a larger table where it might do better than accepting the U.S.’s leftovers.
“Competing regionalisms … make sense to those who still think in narrow terms of strategic rivalry,” Wendy Dobson, a former Canadian finance official who is now a professor at the University of Toronto’s Rotman School of Management, writes in Living with China, published last year. “China will be itself,” she said. “Canadians should adjust their expectations by learning about it and living with it as it evolves.”
That doesn’t mean Canada rolls over for Beijing. But Canada should also avoid reflexively siding with the U.S., especially when the White House is actively harming Canadian interests by disrupting the global order. Dobson thinks Canada should spend more on its military so it could be a better friend to smaller Asian powers that have their own issues with the U.S. and China.
Bottom line: uncertainty is now a permanent condition of the global economy. “It’s a great time to be a political risk consultant,” Bremmer said.