U.S. Can Destroy Huawei

Catch-up is how economists explain the success of China and other fast-growing developing economies. Not having to invent the wheel, the microchip or the theory of continuous improvement is a distinct advantage over having to invent them.

This is not a small part of the Huawei story. Its rise in 32 years to be the world’s largest telecom-equipment manufacturer and the second largest maker of smartphones is a story of catch-up—of learning from the West, but also stealing from the West. Or to put it more politely, Huawei has taken advantage of the fact that Beijing is not interested in enforcing the intellectual-property rights of foreigners under Chinese law.

An early Huawei router design was shown to have been filched from Cisco, right down to copying the typos in the instruction manual. This week a U.S. criminal indictment piggybacking on a successful private lawsuit by T-Mobile shows persuasively that Huawei stole the design of a robot, known as Tappy, for testing the durability of cell phones.

Nobody in his right mind thinks these episodes are exceptions. Nobody even needed these episodes to suspect that Huawei’s spectacular success has not been the product entirely of its own ingenuity and hard work (though these have been considerable). U.S. and other Western companies also vigorously “learn” from each other right up to the limit prescribed by our patent laws. In China, there is no limit. Stealing is regarded as a national development strategy and patriotic duty. The U.S. indictment alleges that Huawei even offered bonuses to employees who successfully purloined a competitor’s trade secrets.

This might seem clever, but it points to a problem for China’s own development—and not only because it antagonizes trade partners. China wants higher-order technology and investment from the West. It won’t come if trade secrets aren’t honored and enforced. China’s own firms cannot develop to their potential, at home or globally, if their own intellectual property isn’t secure even as they are distrusted abroad as agents of Chinese spying.

Which brings us to the growing tranche of U.S. legal actions directed at Huawei. We might prefer that prosecution of its chief financial officer, Meng Wanzhou, now awaiting extradition from Canada, were over something other than violating U.S. sanctions on Iran. But the U.S. is nonetheless positioning itself to destroy China’s shiniest success story, as it almost did ZTE until Donald Trump relented in a last-minute olive branch to Xi Jinping.

If Ms. Meng is extradited and convicted, she can be given a stiff prison sentence. The U.S can impose heavy fines on her company for sanctions-busting as well as for unrelated technology convictions. The long arm of U.S. law can seize Huawei assets and threaten key employees—including founder and CEO Ren Zhengfei—with arrest if they set foot outside China. Washington can turn up the pressure on other nations to exclude Huawei equipment from their networks. Perhaps most damaging, it can stanch Huawei’s access to still-vital U.S. building-block technologies.

In U.S. Trade Representative Robert Lighthizer, Mr. Trump has a general who probably would be happy to command such a war. Mr. Xi’s government might respond by stirring up patriotic froth in China’s media. Beijing might start seizing U.S. businesspeople as hostages, as it already has done Canadian businesspeople in apparent response to the Meng extradition fight. If so, look out below.

The Trump administration tends to exaggerate how much U.S. prosperity and security depend on getting tough over China’s trade practices. Our national strength is overwhelmingly made at home.

On the other hand, if China wants to go down this road, it might as well unfurl a banner declaring itself North Korea writ huge—a country that intends to thumb its nose at international norms, a pirate nation living by blackmail and theft. Six years ago this column was spanked by foreign-policy types for saying a tad too bluntly that stealing was an activity that “unites the private and public selves of Chinese officials.” But it’s true. For the sake of its own development, China needs to start separating business from the state, and holding its companies to some cognizable standard of lawfulness.

So here’s a question: Do you trust both sides to manage this conflict? Washington should be able to mete out technology sanctions, arguably necessary to protect U.S. security and military advantage, without throwing the entire economic relationship out the window. It can uphold our laws and prosecute Huawei for clear violations without trying to bury China’s entire output of exported iPhones, coat hangers and flat-screen TVs in tariffs.

For its part, getting into a full-scale economic war over practices that Beijing knows are indefensible and need to change would be an exceedingly poor decision by China’s maximum leader, Mr. Xi. Unfortunately, poor decisions have been a métier, off and on, of China’s Communist Party over the past 70 years.

We should not kid ourselves about the risks. Not all risks can or should be avoided, however.

Clueless Versus Trump

Apple will not be the only multinational that will soon bring back gigantic profits to take advantage of new low repatriation rates. Microsoft holds $146 billion in overseas earnings, Pfizer $178 billion, General Electric $82 billion, Alphabet $78 billion, and Cisco $71 billion, according to estimates from the Zion Research Group. The total stash is about $3 trillion — by one measure nearly three times what it was just a decade ago.

.. the damage their hubris does to the anti-Trump case.

.. But how can the critics who previously assured us that Trump’s election would cause certain calamity now explain that he’s nothing but a lucky bystander to forces beyond his control?
.. The truth is that it’s hard to account exactly for why the economy does well or poorly from one year to the next. But it’s also true that the president has been nothing if not aggressive in his efforts to remove regulations, cut taxes and promote American business (not least his own), and animal spirits on Wall Street have responded accordingly.
.. Democrats are placing a large bet that it’s a political showdown they can win. But what they are mainly doing is wrecking their chances of retaking the House or Senate by appearing to put the interests of DACA’s immigrant “Dreamers” ahead of the rest of America.
.. Donald Trump is a profoundly defective person who nearly every morning does grave political self-harm with no assistance from his opponents. But he is also president, and normal Americans — that is, those who hold the outcome of the next election in their hands — do not want him to fail
.. Wouldn’t it be smart of all of Trump’s opponents to show they are superior to him in the former? And wouldn’t a good way of doing that be to abjure the latter, even if it sometimes means giving him some credit?

Cisco’s Feud With Former Star Executive Turns Personal—and Costly

Arista Networks’s CEO Jayshree Ullal, who was once close to John Chambers, is grabbing Cisco’s networking business and winning over customers

Mr. Chambers, 67, now Cisco’s executive chairman, is credited with the company’s extraordinary growth phase in the 1990s, largely by buying smaller companies, including Crescendo Communications where Ms. Ullal worked.

Ms. Ullal, who rose to become one of Cisco’s most valuable executives over her 15 years at the company, ran the switching division, which allows companies to shuttle data at high speeds. By the time she left, switching was Cisco’s biggest business, with more than $10 billion in annual revenue, a big reason why Cisco recovered from the dot-com bust.

.. Ms. Ullal, raised in India, was an outspoken engineering and marketing whiz who disliked rigid rules.

Ms. Ullal grew frustrated as Cisco began moving beyond its core switching and routing business into areas such as high-end videoconferencing and consumer electronics, former executives who worked with her said. About a year before she left, Mr. Chambers had created dozens of internal councils and boards, which was at odds with her command-and-control approach.

.. Ms. Ullal urged her employees to avoid attracting Cisco’s attention at first, said a person familiar with her thinking. As the giant in the field, Cisco could have “destroyed us with a stray thought,” this person said.

.. Arista’s technology was faster, more flexible and less expensive than Cisco’s

.. Facebook engineers described Cisco as “behind the curve and on target to become irrelevant” in the data center

.. Other customers started complaining. An email from a customer support engineer in August 2013 to dozens of senior managers, including Mr. Robbins, the future CEO, said Morgan Stanley had lost confidence in one of the switching products “after more than 12 months of ongoing software defects, instability and a lack of needed features.” The bank halted plans to use 400 Cisco switches and said it might turn to Arista.

.. Cisco interviewed dozens of executives to understand the problem. The brutal conclusion in a September 2013 report: Cisco had good ideas and talented employees but a risk-averse culture, indecisive leaders and too big a focus on incremental products.

.. Inside Cisco, a “Beat Arista” document in January 2014 warned that the impending IPO would provide the upstart the cash to strike Cisco’s most profitable product lines. “Time is now to target their top 100 accounts—slow momentum, impact revenue & market share and help drive an unsatisfactory IPO,” one slide said.

.. Arista prevailed over Cisco in a trial late last year over copyright claims and one patent claim in one of the lawsuits.

.. Arista’s share of the overall data-center switching market has grown from nothing in 2010 to over 9% in 2016, while Cisco’s share has fallen from about 80% to about 58%, according to research firm International Data Corp.