Huawei ban: Is UK-Chinese trade heading for the deep freeze?

Industry News | | MIC Customs Solutions |

After the UK banned Huawei from its 5G networks, will trade between Britain and China nosedive?

After years of positive bilateral relations between the UK and China, a technology-related political decision appears to have soured the partnership. Now, analysts are wondering if we are about to enter a new Cold War - or if the whole thing will eventually blow over with the greater good in mind.

The problems began earlier in July 2020, when the British government announced it was banning all mobile providers from buying new 5G equipment manufactured by Chinese giant Huawei after December 31st 2020.

By 2027, all of the manufacturer's existing 5G kit must also be removed from their networks, digital secretary Oliver Dowden told the House of Commons.

This was a remarkable U-turn after the UK had previously insisted it did not see Chinese telecoms equipment as a security threat in the same way US president Donald Trump does. However, a combination of pressure from the Trump administration, Chinese actions in Hong Kong and perhaps even an element of blame over the coronavirus pandemic appears to have prompted the sudden change of heart.

Building blocks for good

In 2015, it seemed as though Britain and China were entering a new golden age for trade, with then-prime minister David Cameron inviting the Chinese to invest heavily in nuclear energy and telecommunications.

George Osborne, then the finance minister, famously boasted that no western economy was as open to Chinese investment as the UK.

By last year, China had become the UK's sixth-biggest export market, up from 26th back in 1999, with trade between the two nations hitting a record high. China had also risen to rank as the UK's fourth-largest source of imports, according to the Office for National Statistics. 

Storm clouds brewing

However, an embittered tit-for-tat trade war had been rumbling on between the US and China since Mr Trump took office, with the president continually pressuring the UK and other governments to follow its lead and stop accommodating Beijing.

Now, it seems as though British prime minister Boris Johnson has taken America's side - and all of the ground gained with the east may be lost.

British businesses say they are bracing themselves for retaliation from a notoriously proud Chinese government, with Chinese ambassador to the UK Liu Xiaoming expressing displeasure and an article in the state-run Global Times saying retaliation should be "public and painful".

Indeed, China has previously lashed out following perceived slights; earlier this year, it applied tariffs to agricultural products in Australia after officials in Canberra said they may investigate the origins of the coronavirus in Wuhan Province. 

Negative effects for businesses

Paul Triolo of Eurasia Group has suggested Beijing may freeze market access for UK firms, suspend vital investments, or shelve trade agreements indefinitely.

On a more practical note, the exclusion of Huawei could delay 5G in Britain by three years and hamper a nationwide rollout ambition originally set for 2025.

Going forward, there may also be the greater risk for the UK economy of turning its back on China at the same time as it contends with exiting the European Union, all on top of battling the financial effects of coronavirus.

Although the nation may be allied with the US more closely as Mr Trump expresses approval of the Huawei ban, America is also in decline after spectacularly underestimating the impact of COVID-19 - so could Britain be cutting off its nose to spite its face in terms of missing out on innovation and new products from the other side of the world?

Still hope for progress?

However, it may be that the situation is not as dire as widely feared. Some analysts believe China might not retaliate as strongly as it has threatened to for fear of putting off other nations in Europe from working with it.

The Asian nation may also have one eye on the impact of coronavirus and sensibly play the long game in terms of putting its own economic recovery first, thereby opting to keep doing business with Britain.

On this note, it could also be looking to the future of 5G and keeping technology such as driverless cars in mind, which will require improved infrastructure and could therefore tempt the UK back (presumably after Mr Trump is gone and the cost of removing Huawei has been counted).

Another point is the opinion of Chinese citizens of Britain - its students favor UK universities and its tourists are keen to visit hotspots such as London again, so putting barriers in the way of these could be ill-advised during what is a period of unrest anyway.

Managing director of the British Chamber of Commerce in China Steven Lynch told the BBC he is optimistic that the two nations will "sustain robust trade and investment in the coming months despite the challenging political environment".

Even if the notion of a golden era is passed, perhaps a new Cold War can still be avoided.