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Brexit Britain's 5G rollout tied to US trade talks

The U.K. will be forced to pick a side and decide whether to ban telecom equipment maker Huawei Technologies Co. Ltd. as it looks to strengthen economic ties with the U.S. and China post-Brexit, trade experts said.

China's Huawei is the world's top supplier of components used in mobile networks. The U.S. government believes it is a threat to national security and has banned it from participating in the rollout of next-generation wireless technology 5G. The White House wants allies to do the same.

Whether the U.K. will comply — and the timing of its decision — is a sensitive issue. After a national newspaper leaked information from a Security Council meeting in April, which suggested Huawei would be allowed to help build 5G networks, the minister responsible was promptly fired and a criminal investigation into the leak was briefly considered.

"It seems Britain believes that now is not the time for decisive action [on Huawei]," said Holger Hestermeyer, an expert in international dispute resolution at the British Academy, the UK's national organization for the humanities and social sciences. The government needs to consider trade relations with the U.S. and China in making its decision, Hestermeyer and other experts said.

The U.K. will have to negotiate alternative trade deals following its exit from the European Union. A customs agreement with the U.S. holds enormous "psychological" value for the U.K., Hestermeyer said. It was touted as a "political game-changer" by pro-Brexit MPs who see the ability to negotiate trade deals as a single country among the chief benefits of leaving the EU, he said.

Prime Minister Boris Johnson said he is willing to exit the EU by Oct. 31 without a formal agreement. S&P Global Ratings forecast that Britain's GDP would contract by 2.8% next year with no deal, and in the long-term, it is expected to do more economic harm than if a deal was reached.

In this scenario, the government will look to present the U.S. trade deal as "a counterweight to trade with the EU," Hestermeyer said. But an economically insecure Britain would be beholden to the White House's demands, according to Matthew Howett, founder and principal analyst at tech analysis firm Assembly.

The U.S. could use "trade as a cudgel" to force Britain to toe the line, said Marshall Meyer, China expert and Tsai Wan-Tsai Professor Emeritus at The Wharton School at University of Pennsylvania.

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America's bargaining power is evident in the U.K.'s trade deficit, Meyer said. U.S. goods and services trade with the U.K. in 2018 totaled $261.9 billion. Exports to the U.K. totaled $140.4 billion; imports $121.5 billion, making America's trade surplus $18.9 billion.

The Huawei decision is relevant to the U.K.'s trade relations with China too, Hestermeyer said. One way China could respond to a Huawei ban is to cut investment in the U.K., particularly to high-level education, Meyer said. That is, unless U.K. universities reject the funding first — as Oxford University did following pressure from MPs this year.

Politics aside, the U.K. will not want to disrupt its historic intelligence-sharing relationship with the U.S. The pact, known colloquially as the "Five Eyes" alliance, also includes Canada, Australia and New Zealand, who formally joined in the aftermath of World War II.

Excluding the U.K., all members have taken varying forms of action against Huawei. New Zealand and Australia have imposed partial to complete bans on its 5G equipment, while Canada arrested Meng Wanzhou, Huawei's CFO and daughter of the company's founder, at the request of the U.S. government in December 2018. British MPs echoed accusations made by the U.S. and Australia about Huawei's facilitation of China's alleged human rights abuses in a heated exchange with the firm's Global Cyber-security and Privacy Officer John Suffolk in June.

"Britain's historical ties with the U.S. will dwarf any economic decision," Meyer said.

The U.K.'s instinct to wait for greater certainty on the U.S.-China trade war at least is not entirely wrong, Howett said.

U.S. President Donald Trump has been under pressure from the U.S. tech industry to lift the export ban on Huawei, Howett said. Google LLC, QUALCOMM Inc. and Intel Corp. attended a White House meeting with the President in July where they spoke of the financial impact of the trade block on their respective businesses. Trump has since twice granted domestic firms a temporary reprieve to deal with Huawei.

That may explain the British government's cautious approach thus far, Howett said.

It also has to consider the views of local telecom operators, who rely on Huawei technology. Vodafone, for example, has said banning the supplier will delay 5G rollout at huge cost.

Nevertheless, with a no-deal Brexit still possible, Howett predicts Britain could find itself at "the mercy of the U.S."

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