When Ren Zhengfei founded Huawei in 1987, the Chinese telecommunications company had a few thousand dollars in the bank and an eye on reverse-engineering advanced foreign technology. By 1994, Huawei was producing switching equipment, the hardware and software that form the basis of modern telecommunications, and Ren was taking a meeting with Chinese Communist Party Secretary General Jiang Zemin. The Huawei chief executive observed that his company’s product was a matter of “national security,” and that a country “that did not have its own switching equipment was like one that lacked its own military.” “Well said,” Jiang replied. From that moment on, business and government have been partners in the mission to keep China’s telecommunications secure.
Meanwhile, in the late 1990s and throughout the first decade of this century, the United States did not think much about its telecommunications dominance. Its leadership in the sector was unrivaled, and U.S. innovations—including 2G, 3G, and 4G technologies—were widely adopted and securely used around the world. But as the United States sat complacently in the top position, trusting that the strength of the free market would keep it there, China was carefully setting itself up as a challenger. Beijing poured resources into Huawei and other Chinese companies, positioning them to outcompete foreign firms. So successful was this effort that by 2012, Huawei telecom gear had been deployed across rural America, covering the bases that house U.S. nuclear weapons. This effectively provided the Chinese government with constant surveillance of the United States’ most sensitive capabilities and military operations. Huawei may not have been raking in profits from this venture, but for Beijing it was an intelligence coup.
Although the United States began to push back on these efforts and eventually banned Huawei from U.S. networks in 2016, Huawei’s successes have continued to mount. The company is now the world’s largest provider of 5G networks and a dominant player in telecom equipment. It is also poised to lead the next generation of networking—6G. The company’s competitors accuse it, with some justification, of achieving this dominance through intellectual property theft, helped along by aggressive Chinese subsidies and a closed Chinese market. Meanwhile, Huawei has demolished many of its rivals. Over the last 15 years, some, such as the U.S. companies Cisco and Motorola, have been driven out of the equipment market; others, such as the U.S. company Lucent, the French Alcatel, and the German Siemens, have been forced to sell or merge with larger firms in order to compete. The Canadian company Nortel declared bankruptcy in 2009. Today, only two non-Chinese firms remain capable of competing with Huawei on a global level: the Swedish firm Ericsson and the Finnish Nokia. The United States is their largest market, and U.S. telecommunications rely on the services of both.
This is not simply about Western firms’ lost market share. Huawei’s networks carry valuable data, which the company is obliged under Chinese intelligence laws to provide at the government’s request. That access would be valuable to Beijing at any time. But now, in the era of artificial intelligence, the data sets that Huawei transports also have another function: training AI models. Huawei has deployed its Smart City services—which can include street camera imaging; electricity, gas, and water meter data; and social media analysis—in more than 200 cities in 40 countries, from Singapore to Spain. The data sets this produces could be fed straight into Chinese AI models and made available to China’s military and intelligence agencies, making Beijing not just a leader in telecommunications but the dominant player in the use of AI for public safety and national security. The recently exposed Salt Typhoon hacking operation, which targeted major U.S. telecommunications firms, also demonstrated China’s determination to gain access to U.S. networks by any means necessary.
U.S. President Donald Trump in his first term and President Joe Biden after him took steps to slow China’s ascent to this commanding height. Both administrations tried, in particular, to address Huawei and other Chinese firms’ cost advantage over their Western counterparts. Yet Huawei continues to extend its global reach. Beijing will gain an even greater edge in telecommunications if international tensions and trade wars undermine cooperation among Western countries. In his second term, Trump must redouble U.S. efforts to compete, enhancing programs that are working, making hard choices about how to allocate the range of invisible waves that carry wireless signals such as radio, television, and phone data through the air, known as spectrum, and working with allies to finance research and development and technology deployments abroad. Otherwise, China will extend its lead in 5G into the transition to 6G, cementing the country’s authority over worldwide telecommunications—and putting it in a position to compromise the security of the U.S. and allied military and intelligence operations that rely on these global networks.
EARLY STUMBLES
In the twentieth century, U.S. government investments resulted in the creation of the Internet, high-speed networking, and the Global Positioning System (GPS). Innovations in cellular technology by American firms also shaped global communications: 2G brought text, 3G brought mobile broadband, and 4G brought mobile video and app stores. Apart from its support for research and development, Washington largely left the free market alone. In China, by contrast, the government and military treated leading telecommunications firms as national champions, powering their rise because their success bolstered Beijing’s strategic aims. Huawei alone reportedly received $75 billion in government support between 2008 and 2018, which enabled it to gain market share by pricing products well below cost. In the late 1990s, Western vendors owned nearly 90 percent of the market for telecom gear. By 2025, Ericsson and Nokia, even after acquiring their failing peers, were down to a combined 40 percent market share. Chinese firms account for an additional 40 percent of the global market.
Today, the United States and Europe—home of both Ericsson and Nokia—are sitting on a shrinking base, as China continues to undercut their sales pitches by subsidizing Huawei deployments around the world. Although Huawei’s global dominance in 5G has been slowed by U.S.-led sanctions and export controls, neither U.S. innovations nor those of its partners have threatened the competitiveness of its products. Given that Huawei’s research and development budget is more than twice the size of its two next-largest Western competitors, the company is unlikely to lose its innovation advantage.
The first Trump administration, recognizing the need for secure telecommunications, banned Huawei and other Chinese products from U.S. networks and took steps to replace the gear that was already present. The United States also began to encourage its allies, most notably the United Kingdom, to remove Huawei gear and work with trusted firms instead. The Biden administration continued this strategy. But both parties have known for years that banning Chinese technology would not be enough. The United States and its partners would need to develop a cost-effective alternative that could compete with China’s aggressively subsidized products. To that end, the Biden administration brought in two critical government agencies, the U.S. Export-Import Bank and the U.S. International Development Finance Corporation, to, among other projects, directly finance Costa Rica’s move from a Huawei 4G network to a trusted 5G network and to team up with Finland’s investment bank to finance a major deployment of Nokia’s 5G technology in India.
CUTTING COSTS
Washington’s objectives have not changed. It needs to compete with China at scale, narrow the price gap between U.S. and Chinese technologies, and encourage wider adoption of trusted systems. The way to accomplish this is with incentives for technology innovation and joint financing for countries choosing between Chinese and non-Chinese technologies.
The Trump administration should begin by making better useof the ten-year, $1.5 billion grant program established by the 2022 CHIPS and Science Act. Initial grants focused on funding large-scale interoperability testing of technologies that integrate hardware and software from different vendors. Over $140 million was awarded to U.S. and foreign firms and universities through this initiative, with a further $420 million in grants made available in May 2024. This was a good start, but future funding rounds must move much faster and focus on projects that commercialize new technologies, giving U.S. software companies greater incentives to enter the market. In particular, directing capital to the “cloudification” of network infrastructure—that is, subsidizing technology that creates virtual versions of specialized equipment, will pay dividends for U.S. industry, which excels at software development.
Banning Chinese technology is not enough.
AI applications rely on high-speed networking. The United States, however, trails far behind China when it comes to setting up the required infrastructure. Today, 45 percent of U.S. mobile users are covered by 5G, compared with 88 percent of Chinese mobile users. When 5G technology was first introduced, China built 600,000 5G base stations in three months. It took the United States two years to build 100,000. But where Washington cannot compete with Beijing on deployment at scale, it can compete on efficiency. By integrating artificial intelligence into telecommunications operations, companies could rapidly increase transmission speeds and network capacity, improving overall efficiency. The next round of CHIPS grants should be used to drive research and development and pilot projects in this area.
Another important way to lower costs for U.S. firms is through tax policy. For example, Washington can encourage investment in digital infrastructure by allowing accelerated depreciation, a financial tool that enables companies to quickly lower the value of new assets and thus reduce their tax burden and free up investment funds. The 2017 Tax Cuts and Jobs Act included such a provision, but it was set up to last for only a limited time and the mechanism is already being phased out. Congress should now extend these types of tax incentives to a broad category of digital infrastructure equipment to maximize private-sector investment.
KNITTING TOGETHER
Even after the United States implements these reforms, the cost of non-Chinese technologies will still undermine U.S. efforts to persuade other countries to avoid Chinese vendors. The alternative on offer must be technologically advanced and competitively priced. The United States therefore needs to cooperate with its partners on digital infrastructure financing. This model has worked before: under the East Micronesia Cable project, launched in 2022, Australia, Japan, and the United States have jointly contributed over $90 million to support secure, sustainable, and resilient telecommunications infrastructure in and between Pacific Islands countries.
Potential partners that could bring expertise and commercial capabilities to a U.S.-led 5G financing campaign include the EU, Japan, and South Korea. The two European heavyweights in the field, Ericsson and Nokia, are already well established in U.S. markets but need additional research and development support to be able to compete globally with Huawei. Japan and South Korea have smaller companies that could also compete if provided enough backing. A deal with Washington that covers R & D and financing for technology adaptation in third countries could help any or all of these partners lessen their companies’ disadvantages relative to Chinese firms.
A China that dominates digital networks would be able to surveil them at will.
China is ramping up its funding for these projects, and the United States and its partners must do the same. The obvious institution for Washington to turn to is the Export-Import Bank, the U.S. government’s credit agency. The bank still needs more flexibility to take on risk and offer competitive financing for 5G projects, but its recent efforts show promise. In 2023, the bank’s board authorized 5G-related transactions in which less than 51 percent of the goods and services involved originate in the United States, provided the exporter could present a plan for job expansion in the United States. Already, $313 million has been approved to support 5G construction in India under a cofinancing agreement with Finland’s export credit agency. With more collaboration of this kind, Washington can show the world that the United States and its partners are determined to offer compelling alternatives to China’s subsidized vendors.
The private sector has a role to play, too. Earlier this year, Google and the government of Chile announced the launch of Humboldt Cable, a subsea cable route connecting Chile to Australia via French Polynesia. A concerted effort by the United States and its allies to include private firms in their strategy can incentivize similar investments to keep far-flung parts of the world connected to Western technology, rather than reliant on companies that may be controlled by Beijing.
GOING WIRELESS
Finally, Washington should reform its spectrum policy. Spectrum, which refers to the range of invisible energy waves used to carry information (such as television and WiFi) through the air, is a limited resource. The Department of Defense is the largest owner of spectrum in the United States and it is not transparent about how much spectrum it requires and when it is used. Spectrum is vital for all kinds of data transfers, whether streaming movies or using drones to monitor infrastructure—in other words, it is not only the government that needs it. But in the United States, unlike in China, the public and private sectors do not cooperate on shared goals. Instead, the government and private firms compete for access. This holds back U.S. technologies relative to their Chinese rivals. China’s advantages in this area underpin its ambitions to control global networks and to reap military and strategic benefits from that control. Washington will now need to make hard choices to make portions of the Pentagon’s spectrum available for commercial use, while ensuring that it preserves critical military and intelligence capabilities.
The benefits would be significant. U.S. companies would be better positioned to develop next-generation mobile technologies, initiating a virtuous cycle of innovation. As they build and test equipment, products, and technologies for the new spectrum, companies in other countries will follow suit. A hardware and software ecosystem generated by the United States and its allies would then filter across the globe.
In a few situations, the Defense Department will be unable to free up more spectrum for the private sector. But even here there are solutions. The Pentagon should work with commercial firms to scale up the use of new spectrum-sharing technologies, licensing regimes, and AI-supported software to make networks smarter and more agile. This would enable government and commercial users to share spectrum more effectively than is possible today, which means the Defense Department could access spectrum when needed for infrequent but important missions, training, and testing. A pilot project initiated by the Biden administration has aimed to test these technologies at scale and in partnership with private firms. The Trump administration should quickly wrap up this pilot and accelerate the next steps of figuring out how spectrum sharing will be governed and putting rapid dispute-resolution processes in place. This will assure the Pentagon and intelligence agencies that spectrum would be available to them during crises and conflicts. It will also give the private sector confidence that on-demand spectrum would be sufficiently reliable for commercial purposes. That confidence is key to making private-sector investment in digital infrastructure worthwhile.
CATCHING UP
Thus far, much of the digital infrastructure that has undergirded the modern world was invented, developed, and deployed in the United States. If the United States were to lose this advantage for good, the consequences would be immense. A China that dominates global digital networks would be able to surveil them at will. It would also be positioned to lead in AI, training AI models on data that traverses Chinese companies’ networks and controlling AI applications that rely on high-speed networking. Successive U.S. administrations have recognized the magnitude of the problem. But the steps they have taken to address it have not resolved the core issue: the absence of alternative technologies that can compete with China’s on price.
U.S. national security depends on the United States regaining its lead. It cannot do so alone. Although the competition with China will be fierce, particularly because of Beijing’s willingness to wield its economic clout to give its companies a crushing competitive advantage, Washington must engage. Technologies such as 5G, cloud computing, virtualization, and artificial intelligence will only become more important. The country that leads the transition to 6G, moreover, will be at the forefront of advancements in a variety of applications, such as robotics and autonomous vehicles. If the United States, in cooperation with its allies and partners, adopts and implements the right policies, it can regain the technological initiative and protect its intelligence operations and military communications around the world. But to do so, it must ensure that advanced, trusted, and secure digital infrastructure, designed and produced outside of China, remains available—and becomes the technology of choice—both at home and abroad.
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