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Protectionism cuts both ways for US businesses

By  Tan Haojun (Global Times)

08:17, October 16, 2012

Last week, the US House of Representatives' Intelligence Committee released a report claiming that Huawei and ZTE, two of China's largest telecommunications companies, pose a threat to US national security and should be blocked from competing for US government procurement contracts as well as mergers and acquisitions in the country.

The report, which found fault with both companies for failing to explain the exact nature of their relationships with Beijing, has aroused concerns and suspicions of protectionism as much of the evidence about the alleged security risks posed by Huawei and ZTE remains classified.

From behind the scenes, however, another story has recently surfaced. Over the past several years, Cisco Systems, a US network equipment giant, along with several other US tech firms, have been stoking security fears to hinder Chinese companies like Huawei from expanding in the US.

According to a report from the Washington Post, one of their lobbying efforts included the distribution of a document in 2011 that alleged Hauwei had close ties with the Chinese central government. Cisco and others called on US telecoms customers not to do business with Chinese firms and meanwhile appealed to congress for increased scrutiny into the dangers posed by Huawei.

Cisco and its cohorts repeatedly asserted that Huawei's relationship with the Chinese government could threaten the US, but with no convincing evidence to support these charges, their claims only underscore their growing fear of emerging Chinese rivals who have already gained huge ground in the global market.

It is nothing new of course for businesses to use the tools at their disposal to secure a competitive edge in the market, but relying on the government to impede competition violates the rules of the market. Ultimately though, the political help Cisco and its supporters sought could backfire.

If the US government turns to blatant protectionism to shelter its companies, China could also adopt similar policies for US companies within its own borders, potentially sparking a trade war that could be disastrous for enterprises in both countries. If this happens, Cisco could be hurt more than Huawei in such a dispute thanks to the increasing importance of the Chinese market.

According to data from the China Business Journal, Cisco's business in China accounted for about 30 percent of its total profits, second only to the 45 percent share from its home market. And the Chinese telecoms market is growing quickly, despite the economic woes seen elsewhere in the world.

When Cisco and others stir up trouble for Chinese enterprises in the US, they should not expect friendly treatment in their rival's home territory. If the Chinese government should also consider Cisco a potential menace and decide to search for substitutes, the telecoms titan may loose a lucrative share of the world's most promising market.

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