Schoolyard Bully

Readers share their opinions on a second missile crisis with Russia…

One says, “I am afraid that nothing good will come of this.”  While another reader’s more confident: “The U.S. holds all the cards….”

This reader’s prediction pretty much nailed it in terms of Trump’s response:

“Air, land and sea blockade; freeze every bank transaction we can; advise every nation in the world if they trade with Iran, they lose all support from the US!”

Our last contributor has his doubts…

“My best guess? ‘We will see,’ as Trump is fond of saying when he has no idea what will happen as a result of his words or actions.

“The consequences of unilaterally taking us out of the deal with Iran are still unknown. Certainly, one consequence is that the U.S.A. has become an unreliable — never mind unpredictable — actor on the world stage.

“Some countries might be small but that doesn’t mean they’re stupid. Bullies usually are.”

To be fair, Trump’s rhetoric yesterday was measured; speaking for the U.S., he indicated that we’re not spoiling for a fight with Iran or any other country.

Convinced otherwise? Let us know.

Your Rundown for Tuesday, June 25, 2019:

Trump’s Misguided Banhammer

Last week, we introduced you to economist and tech-futurist George Gilder, someone our own tech maven Ray Blanco considers a personal hero.

Ray cites Gilder’s accurate predictions — the microchip, the Internet, the smartphone — as reasons why Ray relies on and trusts Gilder’s research above almost anyone else.

Now read George’s take on a Chinese tech giant that’s made the U.S. Commerce Department’s “Entity List”… a move George believes is completely misguided:

When the founder of Huawei, Ren Zhengfei, asked me to come speak at his summit recently, I accepted right away.

The main reason?

I believe the trade war Trump is waging with China is an incredible mistake. And that the collateral damage being done to our relationship with Chinese technology leaders — specifically Huawei — might be irreversible.

In May, the Trump administration added Huawei to the Commerce Department’s Entity List. Essentially, that means Huawei is on the blacklist for U.S. corporations.

And Trump has been using the ban on Huawei as a bargaining chip in the trade war — an incentive for China to cooperate.

We should not be blocking Huawei from doing business with American companies.

Quite the opposite…

We should be embracing the company and its technology leadership. Technology innovation cannot progress without learning. And we have much to learn from China, specifically Ren Zhengfei.

In three decades, Mr. Ren turned the equivalent of $3,000 into China’s telecom-equipment champion and a multinational colossus.

Huawei boasts $105 billion in annual revenue, operates in 170 countries, and employs 180,000 people.

Its finance division, run by CFO (and Mr. Ren’s daughter) Meng Wanzhou, is staffed by hundreds of graduates of Harvard, Cambridge, Wharton, and Yale.

The company boasts some 2,300 patents in 5G technology. And it has purchased more than $11 billion worth of microchips from U.S. companies like Intel and Broadcom.

So why the ban?

I believe it comes down to three main reasons. Let’s review them now, including why each reason is inherently flawed…

Reason #1: Huawei is a State-Run Company That’s Spying on Us

In the U.S., anxious experts and rivals have offered many explanations and alibis for the rise of Huawei.

Mr. Ren, they say, is an ex-officer of the People’s Liberation Army who created his company as a Trojan horse for communist hackers and spies. The company does the bidding of Beijing, which requires Chinese companies to cooperate with its intelligence services.

In other words, the government is pulling the strings. And huge subsidies and heists of intellectual property allegedly account for Huawei’s ascent.

But here’s the thing…

State owned enterprises in China have steadily shrunk as their private firms have boomed.

Today, Chinese government spending on businesses has dropped to around 17% (compare that to the U.S. at nearly 40%.) They have three times as many IPOs as the United States — and by far more venture capital than we do.

For Huawei specifically, Mr. Ren launched one of the first fully private firms in mainland China, pioneering a U.S.-style employee stock-ownership plan.

Huawei triumphed by outperforming the state-owned enterprises that had previously dominated China’s telecom industry.

The company’s independent auditor, KPMG, reports no major state subsidies and verifies Huawei’s private ownership structure, with 98.6% owned by employees and 1.4% by Mr. Ren.

Reason #2: Huawei Steals Intellectual Property

The claim leveled most frequently against Huawei is that it steals. But rival technology companies necessarily imitate one another — and use common components under industry standards.

Yes, this provokes tensions over intellectual property.

In January 2003, the American router pioneer Cisco hit Huawei with a wide-ranging lawsuit, alleging Mr. Ren’s company had copied Cisco’s software code and violated several of its patents.

Mr. Ren saw the lawsuit as an opportunity, declaring his trust in the U.S. legal system and sending Huawei lawyers and engineers to remote East Texas to defend the company.

The two firms eventually settled their dispute.

In the years since the settlement, Huawei has become a prime mover in the telecommunications industry.

It has paid U.S. chip maker, Qualcomm, more than $1 billion in royalties in recent years. And as I mentioned above, it’s purchased billions of dollars’ worth of chips from American firms.

Reason #3: Chinese Companies Have Communist Ties

Nearly all Huawei’s American critics implicitly deny that it is possible to accommodate Chinese capitalism without supporting Chinese communism.

Now, it’s worth noting that I hate communism as much as anyone, and have devoted most of my career to fighting it.Yet somewhat paradoxically, I have great respect and admiration for Chinese businesses, despite their communist government.

The truth is, while I recently spent a month in China, speaking at many of their major universities, I scarcely met a real communist.

In fact, I found their government bureaucrats far more sophisticated and flexible than ours. None of them mentioned climate change as any kind of threat.

What’s more, most Chinese students… completely see through communist lies and flaws. I actually find Chinese students to be more capitalist in their views than American students.

Vilifying Chinese companies simply for being Chinese would cripple the world economy. And, I hate to say it, but without the help of Chinese capitalism, we’re pretty much over as a global power and economy.

Banning Huawei is the Opposite of Progress

With a steady stream of news stories about data breaches and international hacking, people have grown understandably nervous about what the future holds for personal privacy, economic growth, and national security.

That cannot be ignored. But a ban on Huawei is not the answer.

If U.S. telecom companies and network managers are worried about Huawei, they should ask to see the company’s software source codes.

If consumers interpret the continual patter of software upgrades as a threat to privacy, Washington should assign the role of managing them to domestic telecommunications companies.

In the end, however, erasing the fear of cyber attacks will require the development of a new and secure internet architecture.

The good news is that technologists around the world are developing such a system.

I plan to reveal that new architecture in a special event on July 2 at 1PM EDT.

The event is completely free to watch. You just need to reserve your place.

Click here to sign up for the event now.

Market Rundown for Tues. June 25, 2019

S&P 500 futures are steady at 2,952.

Oil’s lost 7 cents; it’s going for $57.83 for WTI.

Gold continues to rise — up $14 to $1,432.20 per ounce.

Bitcoin is up $188.16 to $11,222.67.

Have a good day. We’ll talk tomorrow.

For the Rundown,

Aaron Gentzler

Aaron Gentzler

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Aaron Gentzler

Aaron Gentzler is the publisher of Seven Figure Publishing. He is also the editor of The Rundown and has been with Agora Financial / Seven Figure Publishing since 2005. He's been covering technology and markets for over a decade.

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