Moneybox

Donald Trump Cranks His Trade War to 11, Moves to Kneecap China’s Biggest Smartphone-Maker

People walk past a Huawei store in Shanghai on May 10, 2019. (Photo by HECTOR RETAMAL / AFP)        (Photo credit should read HECTOR RETAMAL/AFP/Getty Images)
A Huawei store in Shanghai.
Hector Retamal/Getty Images

Donald Trump yet again escalated his trade conflict with China on Wednesday with a pair of moves that would officially block telecommunications colossus Huawei from the U.S. market and potentially smash a key part of its supply chain. Combined, the steps more or less amount to a declaration of war against one the largest and most important Chinese technology firms.

Huawei is the world’s second biggest smartphone-maker—it recently pulled ahead of Apple—as well as the leading producer of wireless network equipment. But while the company is globally omnipresent, it does scant business here in the United States, where officials have argued that the firm poses a serious security threat because the Chinese government could theoretically use its gear for spying purposes. (This is not totally unreasonable.) Washington has tried, and largely failed, to convince its allies to ban Huawei hardware from being used in their next-generation 5G networks, while indicting the company and one of its top executives on charges related to violating sanctions with Iran and stealing trade secrets.

On Wednesday, the Trump administration launched two strikes against Huwaei. First, it issued an executive order that declared a national emergency and banned Americans from buying any communications equipment from a company owned or governed by a “foreign adversary.” While the document doesn’t list any specific countries or companies, it is pretty clearly aimed straight at Huawei and intended to put additional pressure on the Chinese amid the ongoing trade clash. Second, the Commerce Department added Huawei to its “Entity List,” meaning that U.S. companies will be required to obtain a license before selling it any products or services. That will give Washington power to block Huawei from key U.S. component suppliers, including some of its chip-makers. Such a development could prove extremely damaging—Chinese smartphone-maker ZTE nearly went out of business last year after it was subjected to similar treatment (it was saved after the U.S. and Beijing reached a deal).

Some analysts have suggested that the threat might not be quite as dire for Huawei, which in recent years has increasingly relied on its own chips and could shift to new suppliers. But others say an all-out ban on sales to the company might be crippling. “Without these American suppliers like Qualcomm and Marvell, it can’t even keep a normal operation,” Roger Sheng, a China-based analyst with Gartner Inc., told Bloomberg. “One question remains unanswered though, is how strict will the U.S. execute the ban.”

Trump’s move also raises some questions about the future of the U.S. wireless industry as it tries to transition to 5G, the next generation of networks that will provide dramatically faster download speeds and could be important to adopting tech like driverless vehicles. Huawei is a leading maker of 5G hardware; it has no U.S. competitors. Outright banning the company from doing business with the U.S. could slow down adoption of the technology here. Currently, Nokia and Ericsson are the top providers of telecommunications equipment in North America, and it’s possible the U.S. will be fine continuing to rely on them. But it’s a bit of an open question.

In the end, Trump’s decision to go to town on Huawei by attacking it’s supply chain is a bit like if China decided to scramble Apple’s manufacturing. It’s not a perfect comparison, since Apple does currently huge business selling phones in the People’s Republic, and nobody thinks Tim Cook is going to conduct espionage on behalf of the CIA. But fundamentally, we’re putting the screws to their national tech champion. It’s a big deal. Now let’s see how the Chinese respond.