The U.S. Wants to Ban Huawei. But in Some Places, AT&T Relies On It.

U.S. officials have told telecommunications executives around the world to steer clear of Huawei Technologies Co., calling the company a national-security threat, but that hasn’t prevented AT&T Inc. T 0.72%from using the Chinese company’s equipment in Mexico.

While AT&T has kept Chinese equipment out of its domestic networks, industry executives say the U.S. company uses Huawei’s gear to run a large part of the wireless network in Mexico, where the electronics giant is as welcome as any other supplier.

Huawei boxes sit atop cellphone towers across Mexico, where AT&T is the No. 3 provider in terms of wireless subscribers. The Dallas company inherited much of its Mexican gear through acquisitions, though executives say it also has used the Chinese supplier to upgrade its 4G network in recent years.

“We are the most significant vendor in this country,” Cesar Funes, a Huawei vice president in Mexico, said in an interview. “We respect, of course, headquarters’ discussions with their governments. We just continue supplying them what we are asked to supply.”

“When we upgraded our Mexico network to 4G LTE, we replaced Huawei in our data core network with equipment from the same suppliers we use in the United States, because it gave us consistency in design and scale in purchasing,” the spokesman said. “We expect to harmonize our networks in the same way when we upgrade to 5G in Mexico.”

Huawei competes with Sweden’s Ericsson AB and Nokia Corp. of Finland to equip cellphone network operators. Most large telecom companies keep two or more suppliers in the mix to maintain leverage in future negotiations.

.. Huawei is the world’s top telecom supplier, according to market analyst Dell’Oro Group. Its success abroad has alarmed American officials who fear that telecom executives won’t be able to avoid using Chinese producers, especially in countries with close economic ties to the U.S.

Today’s 4G networks are linked across borders, but future 5G networks could make national boundaries even less relevant. Mr. Strayer said newer cell-tower equipment will be more than “dumb” conduits for information, leaving a broader swath of cellphone networks vulnerable to potential snooping.

AT&T entered Mexico in late 2014 after the Mexican government enacted legislation to enhance competition in a famously concentrated telecom market. The Dallas company pieced together a wireless company by snapping up two smaller players, Iusacell and Nextel Mexico, inheriting a dense network of machinery bought from Huawei, among other suppliers.

.. AT&T doubled down on Huawei over the next four years as it upgraded the infrastructure it acquired to support 4G service. A senior AT&T executive in 2016 told an industry publication that the supplier’s performance was “excellent.” The company has estimated the price of replacing the Huawei electronics it has in Mexico and found the cost prohibitive, according to a person familiar with the matter.

.. The Chinese company, which also makes cellphones, has spent years raising its profile in Mexico. It had its brand name splashed across jerseys for the popular soccer team Club América—until the AT&T logo took its place. When AT&T’s Mexican headquarters moved into a glassy tower finished in 2016, Huawei moved into a satellite office a floor away to stay close to its client.
.. AT&T has bet that a Mexican middle class can boost its future profits. The company invested more than $7 billion, including the $4.4 billion spent to acquire Nextel and Iusacell, over the past four years to improve its network there.

What to Expect From 5G Phones—and When

The early ones will be expensive, and they may not change the mobile experience. So, should you wait to buy one?

In the coming months, you will be able to buy your first smartphone compatible with faster 5G networks. It will likely come loaded with features like a large screen and souped-up camera.

“Even if you have a 5G phone this year, your chance of actually accessing a 5G network is probably fairly low,” says Mark Hung, an analyst at research firm Gartner Inc.

To understand why, consider that there are two ways to provide 5G coverage—and the phone you choose may not be designed to handle both.

One method delivers 5G signals on the high-frequency end of the spectrum. The upside is extremely high speeds—fast enough, it is often said, to download whole seasons of a TV show in minutes. The downside is that these signals don’t go through walls or other obstructions very well. The other method of delivering coverage—using the lower end of the spectrum—means that signals travel better, but speeds aren’t as fast.

Most carriers will eventually use both methods of delivery, but at this point not all 5G phones will be able to access both—so choosing a phone means deciding which technical trade-off you want to make. (That said, 5G phones will work with existing networks, such as 4G LTE, so you won’t get stuck if there isn’t compatible 5G coverage nearby.)

One big unknown, even among devices that have been unveiled: how long their batteries will last. That may impact their appeal at first, although battery life may improve in subsequent generations as it has for prior models of smartphones.

How the U.S. Can Catch Up in the 5G Race

Government collaboration is much more important in building out the network than it was for 4G

By far the largest distraction was net neutrality, an academic networking issue with a negligible effect on consumers. Net neutrality remained obscure to the public until 2014, when a coalition of law academics, media activists and large and small Web companies persuaded President Obama to their side. Net neutrality then became a political issue, which poisoned the normally chummy relationships between the FCC and the relevant congressional committees and turned telecom and tech companies against each other. The regulatory warfare has played out in seemingly endless agency proceedings, congressional hearings and court petitions.

This issue never consumed regulators and industry in Europe and Asia like it did in the U.S. In Europe, though, 5G ambitions have hit other roadblocks. Europe’s 5G pilot programs are extensive and have government subsidies and support. However, Europe’s fragmented wireless sector—there are more than 100 national cellular carriers in Europe, compared with four in the U.S. and three in China—and restrictive regulatory environment are handicaps.

Meanwhile, the Chinese government has prioritized 5G global leadership through central planning, subsidies, university training and the recruitment of tech talent. And China has quietly developed a truly advanced tech sector that is ready to build new apps and services for the 5G network, led by companies like Tencent, Baidu, JD.com and Alibaba.

A winning formula

The U.S. isn’t starting from scratch, however. Indeed, in one important way it has a head start: The country is covered by the most extensive web of 4G networks in the world. Those networks can be upgraded to the world’s most extensive 5G coverage if cities and counties can expedite the permits needed for network updates and resist charging excessive fees and lease terms for cells on public property.

Most important for 5G success, the U.S. has Silicon Valley, other tech outposts nationwide and lone-wolf inventors scattered throughout the country. This freewheeling, innovative tech culture and the rich venture-capital industry that nurtures it are a combination that is unique globally, despite other countries’ attempts to imitate it. Chinese companies are leaders in 5G patents and standards proposals, but they will have a much harder task in matching the U.S. tech sector’s ability to create popular mobile apps and services for a global market.

Trump Hasn’t Killed the Global Trade System. Instead, He Split it in Two.

Allies find relations modestly tweaked, despite the president’s rhetoric, while relations with China are entering a deep freeze

When Donald Trump entered the White House on a platform of defiant nationalism nearly two years ago, many feared he would dismantle the global trading system the U.S. and its allies had built over the past 70 years.

He hasn’t. Instead, he is presiding over its realignment into two distinct systems.

  1. One, between the U.S. and its traditional, democratic trading partners, looks a lot like the system that has prevailed since the 1980s: free trade with a smattering of quotas and tariffs like those Ronald Reagan once deployed.
  2. The second reflects an emerging rivalry between the U.S. and China carrying echoes of the Cold War. On trade, investment and technology, the U.S. is moving to undo some of the integration that followed China’s accession to the World Trade Organization in 2001.

There are two big questions hanging over this realignment. The first is deciding how far the U.S. is prepared to decouple from China. The U.S. has given China until March 1 to avoid higher tariffs by addressing complaints it discriminates against foreign companies and steals their technology. Mr. Trump is counting on a deal that avoids a trade war. But many in his administration and Congress don’t trust China to make the necessary concessions and would likely advocate a sharper break.

The second question is whether the U.S. can persuade allies to join a united front to contain China. Other countries don’t relish the choice. Their economic ties to China are far greater than they ever were to the Soviet Union during the Cold War.

Two years ago, it was easy to predict a grimmer fate for the global trading system. Mr. Trump campaigned as a protectionist willing to tear up trade agreements and raise tariffs to shrink the trade deficit and bring back factory jobs.

In his first week he withdrew from the unratified 12-nation Trans-Pacific Partnership. He prepared to pull out of the U.S.-Korea Free Trade Agreement (Korus) and the North American Free Trade Agreement. Earlier this year he imposed steep tariffs on imports of steel and aluminum, using a little-used national security law, and threatened the same for autos.

Today, Korus and Nafta have been replaced by updated agreements(one not yet ratified) that look much like the originals. South Korea accepted quotas on steel. Mexico and Canada agreed to higher wages, North American content requirements and quotas for autos.

These represent a step back from free trade toward managed trade, but they will have little practical effect: The limits on how many cars Mexico and Canada can ship duty-free to the U.S., for example, exceed current shipments. Mr. Trump hasn’t stopped threatening auto tariffs, but for now his officials have elected instead to seek broader tariff reductions with Japan and the European Union.

.. Meanwhile, the U.S. trade deficit that incenses Mr. Trump has grown during his presidency, especially with China and Mexico, as a strong American economy sucks in imports. His exhortations to manufacturers to bring jobs back to the U.S. have largely fallen on deaf ears.

Douglas Irwin, an economist and trade historian at Dartmouth College, calls these results the “status quo with Trumpian tweaks: a little more managed trade sprinkled about for favored industries. It’s not good, but it’s not the destruction of the system.”

.. Yet the status quo with China is crumbling. Businesses have grown disillusioned with China’s restrictions on their activities, forced technology transfer and intellectual-property theft, all aimed at building up domestic competitors at foreign expense. Meanwhile, legislators in both parties are alarmed at increased military assertiveness and domestic repression under President Xi Jinping.

.. When Mr. Xi visited the U.S. in 2015, Mr. Sullivan urged his colleagues to pay more attention to China’s rise. On the senate floor, he quoted the political scientist Graham Allison: “War between the U.S. and China is more likely than recognized at the moment.”

Last spring, Mr. Sullivan went to China and met officials including Vice President Wang Qishan. They seemed to think tensions with the U.S. will fade after Mr. Trump leaves the scene, Mr. Sullivan recalled.

“I just said, ‘You are completely misreading this.’” The mistrust, he told them, is bipartisan, and will outlast Mr. Trump.

While delivering one message to China, Mr. Sullivan gave a different one to the administration and its trade negotiators: Don’t alienate allies needed to take on China.

“Modernize the agreements but stay within the agreements,” he says he counseled them. “Then we have to turn to the really big geostrategic challenge facing our country and that’s China.”

His was one voice among many urging Mr. Trump to single out China for pressure. Presidents Obama and George W. Bush sought to change China’s behavior through dialogue and engagement. Obama officials had begun to question engagement by the end of the administration. Last year, in its National Security Strategy, the Trump administration declared engagement a failure.

The Trump administration regards economic policy and national security as inseparable when it comes to Beijing, because China’s acquisition of Western technology both strengthens China militarily and weakens the U.S. economically.

The administration has yet to publicly explain its goals. In 1946, at the start of the Cold War, diplomat George Kennan made the case for containing the Soviet Union in his famous “long telegram.” The Trump administration hasn’t done anything comparable for China. One reason might be that administration officials are divided. Mr. Trump appears torn between wanting to halt China’s rise at any cost and hoping for “a big and very comprehensive deal” that lifts the cloud of a trade war.

.. U.S. and domestic concerns have prompted Australia, New Zealand, Japan, Britain and Canada to restrict or consider restricting Huawei equipment in their telecom infrastructure, in particular for the next 5G mobile phone standard.

The U.S. is also seeking to wall China off from future trade deals. It insisted the pact replacing Nafta include a clause letting the U.S. quit if either Canada or Mexico signs a free-trade agreement with a “non-market economy,” i.e., China.

.. The first goes to the heart of Mr. Trump’s goal. If his aim is to hold back China’s advance, economists predict he will fail. China’s innovative capacity has expanded dramatically. China now accounts for 18.6% of articles in international scientific journals, according to one study, and nearly a quarter of global venture-capital investment, according to another.

Indeed, some China experts fear that the U.S., by adopting a more adversarial approach, weakens China’s reformers and strengthens its nationalist factions, making conflict more likely. They predict China will intensify its pursuit of technological self-sufficiency.

.. Persuading other countries to hold China at arm’s length will be harder than containing the Soviet Union. China accounts for 11% of world exports, whereas the Soviet Union in the 1980s accounted for less than 3%,

.. China is 22% of Japanese imports and exports; the Soviet Union was less than 1%.

.. Many of China’s close neighbors depend far more, economically, on China than on the U.S.

.. U.S. officials note that China’s aid, such its Belt and Road infrastructure program, often saddles recipients with debt. Yet the U.S. offers no alternative, said Mr. Rudd.
.. Some of Mr. Trump’s trade policies undermine the united front he wants against China. He hasn’t sworn off protectionism against U.S. allies, promising to withdraw from Nafta even if its replacement isn’t ratified by Congress. His steel and aluminum tariffs, most of which remain in place, outraged such allies as Canada.

U.S. officials play down such frictions as easily worked out. Abroad, they are seen as more serious. Canadian ambassador to the U.S. David MacNaugton said he told U.S. trade negotiators that if Mr. Trump carried through on his threatened 25% tariff on Canadian autos, it would fundamentally change bilateral relations for the worse for years to come. In a letter accompanying Nafta’s replacement, the U.S. agreed not to levy the tariffs.