Washington’s War on Huawei Is Causing Angst in Madrid

Spain is an important player in the current debate on whether the European Union should use foreign technology, particularly Huawei equipment, in its 5G networks. Spain will become the fourth-biggest economy in the EU after Brexit, it is a committed NATO member, and it is also home to the headquarters of Telefónica, one of the biggest European telecom companies next to Deutsche Telekom, Vodafone, and Orange. It also has a long-standing partnership with Huawei.

This puts Spain in a difficult position. Madrid has always been a security ally of Washington. It has two U.S. bases on its territory, and many of its foreign-policy elites have strong trans-Atlantic links. Furthermore, the military presence of the United States in Spain is growing, as there are plans to station two more destroyers in the strategic port of Rota, near Cádiz, accompanied by 600 U.S. military personnel.

When it comes to economics, the United States is also the most significant partner for Spain outside the EU. It is Spain’s biggest foreign investor, the second-biggest destination of Spanish foreign direct investment, and during the most recent crisis it has been the most important foreign market for Spanish exporters beyond Europe. Hence, the only area in which Spain’s economic links are significantly more substantial with China than with the United States is the import of goods and services: China is the origin of 8.6 percent of total Spanish imports, while the United States represents only 4.5 percent.

For decades, Spain has also been keen to present itself as China’s best friend in Europe.

Even if diplomatic relations have deteriorated due to the Trump administration’s blatant disregard for multilateralism in facing key global challenges such as nonproliferation and climate change, as well as the administration’s imposition of trade tariffs on Spanish products, the United States is still regarded by the Spanish government as the country’s most important non-European partner.

However, for decades Spain has also been keen to present itself as China’s best friend in Europe. Unlike the rest of the European Economic Community countries, Spain maintained its development cooperation and a joint economic commission with Beijing after the Tiananmen Square crackdown.

Francisco Fernández Ordóñez and Juan Carlos I were, respectively, the first EU foreign minister and head of state to visit China after the June 1989 bloodshed. Beijing has always appreciated this unique position.

In Europe, Spain has traditionally combined a soft approach toward China on political issues with a demanding position on economic matters. For example, Spain is one of the most scrupulous countries in applying the “One China” policy, but it is also continuously asking for further opening of the Chinese markets to Spanish goods and services.

As a result, Spain has traditionally been labeled an “accommodating mercantilist” vis-à-vis Beijing—pushing hard on the economic front but refraining from political pressure—but since the government of Mariano Rajoy from 2011 to 2018, Spain has toughened its language and gravitated more toward a free-trade position, thus moving closer to the United Kingdom, the Netherlands, the Scandinavian countries, and Germany.

More recently, following a trend across Europe, Spanish political and economic elites are increasingly seeing China as a systemic rival. There are serious concerns about its state capitalist model, its geopolitical ambitions under the Belt and Road Initiative, and its human rights record.

There are also increasing complaints about frequent Chinese cyberattacks on Spanish public agencies and companies, and growing awareness of China’s hybrid threats. The Spanish National Cryptologic Center, for instance, warned in its 2019 annual report that Chinese attacks targeted critical infrastructure to gather information about possible vulnerabilities and used spear-phishing to conduct cyberespionage in order to acquire technological capacity and economic and security intelligence.

At the same time, the Spanish authorities recognize the need for cooperation with China in international organizations and the extraordinary potential of its economy. Many Spanish businesses, especially in services related to law, consulting, engineering, and banking, want to profit from the Chinese market. Hence, Spain does not want to follow a strategy of decoupling designed to contain and isolate China. This is the reason why the geopolitical rivalry and trade and tech war between the United States and China causes great concern in Spanish political and business circles.

The protectionist spiral initiated by U.S. President Donald Trump and the incessant pressure to curtail collaboration with key Chinese tech companies have been perceived as counterproductive, especially given Telefónica’s long-lasting collaboration with Huawei in its European and Latin American markets. This cooperation has gone beyond mere purchasing of Huawei equipment to include joint programs in research, development, and innovation.

The Spanish government is aware of the geostrategic and geoeconomic dimensions of 5G technology, which will be key in the next phase of the digital revolution based on the internet of things, big data, and artificial intelligence. This is precisely why the Spanish authorities are in favor of more European strategic autonomy and tech sovereignty, especially in critical infrastructure. The feeling in the Spanish government is that the EU, or at least the most important countries in the EU, should have a common strategy on this topic before Spain organizes its 5G auction later this year.

Some Spanish officials are disappointed that France has already unilaterally approved a new law that gives the government ample discretion on 5G networks, that Germany is having an intense internal discussion without really coordinating with other countries, and that the U.K. has moved from treating this issue as a network question to a national security affair—following the pressure from Washington and its imminent exit from the EU.

Against this backdrop, Spanish leaders do not want to take sides between the United States and China, but, if forced, in a bipolar world in which the EU has not developed strategic autonomy yet, Spain would side with the United States because of economic and strategic interests, in addition to obvious affinities when it comes to democratic values.

There is a hard reality on the ground that cannot be avoided: Telefónica’s existing 4G technology in Spain depends entirely on Huawei equipment. However, there is a hard reality on the ground that cannot be avoided: Telefónica’s existing 4G technology in Spain depends entirely on Huawei equipment. Therefore, no matter how much Washington complains, Telefónica will continue to have Huawei technology in what is known as its 5G core—where the most sensitive information is stored—for now and in its so-called periphery, which consists of masts, antennas, and passive equipment. Otherwise, Spain would lag in developing its 5G network, leading to a loss of competitiveness for its whole economy.

For the medium to long term, the suggested “landing zone” of Prime Minister Pedro Sánchez’s government and Telefónica is to have a multivendor core and periphery approach, with no supplier controlling any network end to end, and with the gradual phasing out of Huawei from the core, while still maintaining it in the periphery of 5G networks to minimize costs.

If the United States pushes even harder, demanding the elimination of Huawei from the periphery of Telefónica’s 5G networks—as might be the case in the U.K.—or even asking for its outright ban, Spain will feel bullied. The United States would be seen as a predatory hegemon, and even if Spain prefers to choose the United States over China, this attitude may damage U.S.-Spanish links in the long term.

Already in private conversations, very influential pro-United States foreign-policy experts and pundits from Spain are starting to have doubts about the reliability of the United States as a long-standing ally due to the unilateral and protectionist policies of the current administration.

Instead of winning over European allies and convincing them to put pressure on China to commit to a level playing field based on common trade and investment rules, the Trump administration is alienating its foreign-policy partners.

In Madrid, many officials ask themselves: How can Spain side with the United States when Washington is currently hurting Spain with tariffs on many of its products and with the effective closure of the Cuban and Iranian markets to many Spanish businesses due to secondary U.S. sanctions that impact Spanish firms operating in those countries?

There is growing worry in Spain about entering into a protectionist spiral. If the EU follows the United States and bans Huawei, China might retaliate and ban European cars—and this would be very damaging for the EU and for Spain, which post-Brexit will be the second-largest exporter of cars in Europe after Germany.

The feeling among Spanish policymakers and businesspeople is that the EU must collaborate and cooperate with China and the United States to avoid the creation of two separate tech blocs in the world. There is also a sense that open competition must not be squelched. Telefónica, for example, has benefited a great deal from the competition among Ericsson, Nokia, and Huawei. This has increased innovation and has kept prices low.

That said, if Huawei wants to remain a player, it needs to make its equipment open and follow the high security and fair competition standards that the EU demands.

Spanish tech and security experts say that backdoors are always possible, but so far, the sense among Spanish experts is that the United States has not provided a smoking gun proving Huawei is meddling in digital infrastructure it has built.

The reputational cost for Huawei would be devastating if it were found to be engaging in espionage or sabotage on behalf of the Chinese government. At the end of the day, Huawei is the only genuine global and transnational Chinese company, with considerable operations based in foreign countries and many Chinese and local employees in places such as Spain. If the firm is banned from the EU, China could become more inward-looking, nationalistic, and dangerous—and this would be bad for everyone.

The challenge for Spain is to find the right balance so as to avoid alienating its traditional allies and China while developing its 5G network in an efficient and secure way.