Huawei’s troubles show the limits of the old trade order in a world of data, software and AI
- The Huawei case is a harbinger of a world in which national security, privacy and economics will interact in complicated ways
- Countries must agree on a new regulatory patchwork which allows them to pursue their own interests without exporting their problems
Third, there is economics. New technologies give a competitive edge to large companies that can accumulate enormous global market power. Economies of scale and scope and network effects produce winner-take-all outcomes, and mercantilist policies and other government practices can result in some firms having what looks like an unfair advantage.
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A common response to these challenges is to call for greater international coordination and global rules. Transnational regulatory cooperation and antitrust policies could produce new standards and enforcement mechanisms.
Even where a truly global approach is not possible – because authoritarian and democratic countries have deep disagreements about privacy, for example – it is still possible for democracies to cooperate among themselves and develop joint rules.
They reduce the gains from trade and prevent companies from reaping the benefits of scale. And governments face the constant threat that their regulations will be undermined by companies operating from jurisdictions with laxer rules.
But in a world where countries have different preferences, global rules – even when they are feasible – are inefficient in a broader sense. Any global order must balance the gains from trade (maximised when regulations are harmonised) against the gains from regulatory diversity (maximised when each national government is entirely free to do what it wants).
If hyper-globalisation has already proved brittle, it is in part because policymakers prioritised the gains from trade over the benefits of regulatory diversity. This mistake should not be repeated with new technologies.
In fact, the principles that should guide our thinking on new technologies are no different from those for traditional domains. Countries may devise their own regulatory standards and define their own national security requirements.
They may do what is required to defend these standards and their national security, including through trade and investment restrictions. But they have no right to internationalise their standards and try to impose their regulations on other countries.
Under these circumstances, there is a plausible national security argument for the US – or any other country – to restrict Huawei’s operations within its own borders. Other countries, including China, are not in a position to second-guess this decision.
The export ban on US companies, however, is harder to justify on national security grounds than the ban on Huawei’s US-based operations. If Huawei’s operations in third countries pose a security risk to those countries, their governments are in the best position to assess the risks and decide whether a shutdown is appropriate.
In short, the US is free to close its market to Huawei. But US efforts to internationalise its domestic crackdown lack legitimacy.
The Huawei case is a harbinger of a world in which national security, privacy and economics will interact in complicated ways. Global governance and multilateralism will often fail, for both good and bad reasons.
The best we can expect is a regulatory patchwork, based on clear ground rules that help empower countries to pursue their core national interests without exporting their problems to others. Either we design this patchwork ourselves, or we will end up, willy-nilly, with a messy, less efficient and more dangerous version.
Dani Rodrik, Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government, is the author of Straight Talk on Trade: Ideas for a Sane World Economy. Copyright: Project Syndicate