LONDON, UNITED KINGDOM: This picture shows the London offices of "The Economist" 16 February, 2005. ... [+] Figures due to be released on Thursday, while officially still secret, are widely expected to show that the London-based news magazine has exceeded the one million mark for weekly sales worldwide for the very first time. AFP PHOTO/ALESSANDRO ABBONIZIO (Photo credit should read ALESSANDRO ABBONIZIO/AFP via Getty Images)

Britains decision to ban Huawei actually, completely, perhaps irrevocably from the UKs 5G wireless networks seems to have caught some of the medias solid citizens by surprise. The Economist popped a monocle, and spun up a bright red cover story, subliminally hysterical, entitled Trade Without Trust

The Economist goes on to explain, adopting their once-upon-a-time style:

And after tendering the reader anarchy and collapse,the editors push on to their conclusion:

(This verges on economic nihilism. Unworthy of such a venerable journal, I would say. One wonders how much of Chinas nature we are obliged to go along with. Does that include hostage-taking as a negotiation technique (viz., the two Canadians being held by the Chinese state in solitary confinement since 2018, to trade for Huaweis CFO Meng Wanzhou)? Does it waiver the re-education camps in Xinjiang which Huawei may or may not be helping to technologize?)

But as to Huawei first, to recap: They are of course the largest telecommunications equipment manufacturer in the world. They are Beijings number 1 national champion. They are deeply invested in the narrative of Chinas Rise. Yes, they have been under siege by various branches of the U.S government but the American campaign was seen by many as mere sound and fury, to be resolved in the end as part of the Really Big Deal on trade between the economic superpowers.On what was this supposition based? Well, last year President Trump himself allowed that it was possible that Huawei would be included in a trade deal. And after all, wed seen this movie already once. Huaweis Chinese rival, ZTE, was accused, threatened, roughed up, dangled over the ledge, and then reprieved and restored to a (somewhat diminished) legitimacy. Yes, it is vexing that Huawei and Beijing havent drawn the obvious lesson. But still, it had seemed inconceivable that the U.S might actually go nuclear on Huawei. The company is too big, too important to China, and too well-established in the market to quash completely. The pressures being applied to our allies were interpreted as the usual pro forma American bluster. As recently as January, it seemed as though the Brits would essentially stand pat on Huawei.

The UK ban transformed a colorful tactical skirmish in the US/China trade spat into a tectonic event. Suddenly (as per The Economist) we are at the endgame. It was noticed that Canada and Singapore have decided in favor of Ericsson and Nokia (even though they have not formally banned Huawei). And the French government, while not endorsing a ban, has advised the operators there to steer clear of Huawei.Germany is wobbly. Merkel hesitates, but members of almost every German political party are pushing for a ban If there were a vote in parliament today, Huawei would lose. Telecom Italia also announced this month that it was excluding Huawei from its 5G tenders in Italy and Brazil. Not a good trend for Huawei.

The Chinese are threatening to retaliate, perhaps by banning or restricting European competitors Ericsson and Nokia. Thus, it seems to some that Huaweis take-down must portend a much larger shift in the global order, a New Cold War.

There is overreaction here (where perhaps there was under-reaction before). The Huawei episode is likely not an end but a beginning, a sign of what will become a long turnabout in world economic affairs.

It is not plausible that the global trade network can operate for long without trust. Finance certainly cant function without trust, and trade wont run without finance. The investment process, the capital markets, are based on trust.We can go all the way back to 1913, to J.P. Morgan himself, called to testify on his business practices before a skeptical Congress. Towards the end of a long interrogation, when he was asked by the chief counsel for the House Banking Committee Is not commercial credit primarily based on money or property? Morgan famously declared,

Morgan spoke of trust as personal matter, rooted in the character of ones counterparty. There were very few institutionalized forms of trust in his day. There were no financial reporting standards (no GAAP, no FASB), no true audited statements, no securities or banking regulators (no SEC, no FDIC).There was no central bank in the U.S. In fact Morgan was the Central Bank CPF .

We have spent the past century laboriously constructing the common framework to support trust in the financial system, systemic, structural trust, trust-worthy institutions, like the Dollar, the Federal Reserve, the stock exchange and all its plumbing, the system of financial regulation, modern accounting standards The commercial contracts that enable the global trade process today rest upon these foundations. This is the framework that gives an investor, or a business executive, the confidence that a transaction here (in New York, say) will be honored in London, or Hong Kong, or Shenzhen, and vice versa. Trust is the name of the game today as much as it was in Morgans time. We have built the whole system to uphold and strengthen it, and to make it more fungible. We have made trust which began as a handshake and an eye-to-eye connection into a commodity, which the world can trade in confidence. It underpins our prosperity.

The Economist will regain its composure. Beijing has some sorting out and reflecting to do. Over time, they will build the same framework of trust that the U.S. has assembled, and for the same reasons.

As for Huawei, their predicament as dire as it seems right now is in principle recoverable, as ZTEs was. Not without a price, and with some obvious adjustments. Their basic problem is in a word a loss of trust. They have been careless with that most intangible, but most valuable, of all corporate assets. Still, recovery is possible. Unlike in Morgans day, the world is well stocked with institutions and mechanisms to create and validate trust and confidence. Trust today can be acquired, almost like any other commodity. Huawei has really only to avail itself of these resources. In the companion piece to this column here I have proposed how this might work.

Continued here:

Is The UK Ban On Huawei The Endgame For Free Trade? - Forbes