There At The Beginning

Sometimes it is difficult to gain perspective. That is why it may be difficult to see the forest for the trees. It is as we spend most of our time climbing a mountain: One handhold and foothold at a time. Immediacy and urgency limit our peripheral and forward visions.

The end of the first expansion since the Great Financial Crisis may be drawing close. There is a concern among officials and investors that the tools that would be needed to counter a downturn may be compromised by the inability to normalize monetary policy in the upswing and the limited political will to use fiscal policy (see EMU, Japan's sales tax hike in October and, already large funding needs). Power relations and strategies appear to be in flux. Despite the ongoing US-Chinese trade talks, the antagonism between the two has not really dissipated. The relationship between the US and its traditional allies in Western Europe and Asia seems the most strained in years. 

There is a specter haunting us. It is the specter of a new Cold War; a multifaceted and sustained conflict that stops shy of actual direct military engagement and shapes international relations. We have expressed this concern over the last few months and now we more frequent references to this new division. We may look back to this period as when the confrontations crystallized. The first terrain of this new division might be for the fifth generation of cellular technology. 

For various reasons, China's Huawei and ZTE are among the industry equipment leaders in this space. This poses a challenge because of their close ties the Chinese government and corporate espionage and the security risks this entails.  To be sure this is not simply a theoretical or potential problem, but patterns of actual behavior and security-related incidents. Next week, Germany is going to auction 5G licenses. 

The US has urged countries not to accept Huawei equipment on security grounds or risk being excluding from intel sharing. Germany's intelligence organization warned that Huawei is not trustworthy. Reports suggest German law makes it difficult to block a particular company. However, the draft requirements including implementation of risk procedures, diversity of equipment, and the like, could be effective barriers to Huawei, but that is yet to be proven. Product specifications have been used for economic nationalist purposes in the past. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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