U.S. Blacklists China’s Huawei

by Samuel Abasi Last updated on June 21st, 2019,

Washington: The Commerce Department said it has added Huawei Technologies and 70 affiliates to its “Entity List”—a move that bans the company from acquiring components and technology from U.S. firms without government approval.

Commerce Secretary Wilbur Ross said in a statement that President Donald Trump backed the decision to “prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”

Trump earlier in the day signed an executive order barring U.S. companies from using telecommunications equipment made by firms deemed to pose a national security risk.

The executive order invokes the International Emergency Economic Powers Act, which gives the president the authority to regulate commerce in response to a national emergency that threatens the United States.

The order directs the Commerce Department, working with other government agencies, to draw up a plan for enforcement.

While the order did not specifically name any country or company, U.S. officials have previously labeled Huawei a “threat” and lobbied allies not to use Huawei network equipment in next-generation 5G networks.

In August 2018, Trump signed a bill that barred the U.S. government itself from using equipment from Huawei and another Chinese provider, ZTE Corp.

In January, U.S. prosecutors charged two Huawei units in Washington state saying they conspired to steal T-Mobile trade secrets, and also charged Huawei and its chief financial officer Meng Wanzhou with bank and wire fraud on allegations that the company violated sanctions against Iran.

Shares in Huawei suppliers in China skidded on the news as markets opened in Asia, with Luxshare Precision Industry down as much as 6.1%. Shares in smaller Chinese Huawei rival ZTE Corp also tumbled.

The U.S. move to scrutinize exports to Huawei Technologies Co. threatens to disrupt the Chinese technology leader’s access to critical suppliers it uses across its businesses, from smartphones to 5G. Any pain will reverberate through Silicon Valley too.

Huawei, the world’s leading telecommunications-gear supplier and No. 2 smartphone seller, relies heavily on the U.S. for many advanced components, from chips for handsets and mobile-networks infrastructure to the software that runs its smartphones.

Huawei ban clouds U.S.-China trade talks, tech sector

The U.S. bid to block China’s Huawei Technologies from buying vital American technology threw into question sales from some of the largest tech companies and drew a sharp rebuke on Thursday from Beijing, which warned it could hurt trade talks.

Shares of Huawei’s U.S. suppliers fell on fears the Chinese firm would be forced to stop buying American chips, software and other components after the Trump administration banned it from buying U.S. technology without special approval.

Huawei, the world’s biggest telecoms equipment maker, said that losing access to U.S. suppliers “will do significant economic harm to the American companies” and affect “tens of thousands of American jobs.”

“Huawei will seek remedies immediately and find a resolution to this matter,” the company said in a statement.

The U.S. crackdown, announced on Wednesday, was the latest shot fired in a U.S.-China trade war that is rattling financial markets and threatening to derail a slowing global economy.

Chinese officials said Washington’s aggressive posture could affect trade talks, which appeared to have hit an impasse in the past week as the United States hiked tariffs on Chinese goods and Beijing retaliated with higher duties on U.S. products.

Commerce Ministry spokesman Gao Feng stressed that the United States should avoid further damaging Sino-U.S. trade relations. “China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms,” Gao told reporters.

China’s Foreign Ministry also announced the formal arrest of two Canadian citizens who were detained shortly after Canada arrested Huawei Chief Financial Officer Meng Wanzhou in December.

Meng faces extradition to the United States on charges that she conspired to defraud global banks about Huawei’s relationship with a company operating in Iran. She and the company deny the charges.

While Canada says China has made no specific link between the detentions of the two men and Meng’s arrest, experts and former diplomats say they have no doubt it is using their cases to pressure Canada.

Lawmakers in the U.S. Congress have long feared that Huawei’s equipment could be used by the Chinese government to spy on Americans. Democrats and Republicans lined up in support of the Trump administration’s move.

Republican Senator Marco Rubio said firms should reconsider entering into long-term contracts with Huawei, noting in a tweet that “very soon Huawei will lose access to important components like chips, antennae & phone operating systems.”

Rubio added that for Huawei there are “real questions now about how they can survive this.”

Leading analysts downgraded their assessments for several microchip companies in the wake of the move against Huawei, which was the world’s third largest purchaser of semiconductors last year.

Huawei was the world’s third largest purchaser of semiconductors last year, accounting for 4.4% of global market share and behind only Samsung Electronics and Apple, according to Gartner, a research firm.

There are also growing signs the U.S.-China trade war could filter into the broader economy.

Walmart Inc said prices for shoppers will rise due to higher tariffs on Chinese goods even as the world’s largest retailer reported on Thursday its best comparable sales growth for the first quarter in nine years.

Walmart Chief Financial Officer Brett Biggs told Reuters the company will seek to ease the pain, in part by trying to buy from different countries.

Tariffs

As negotiations toward resolving the trade war stalled last week, the United States ramped up the pressure by raising tariffs on a list of $200 billion worth of Chinese imports to 25% from 10%.

China, which views the U.S. decision last year to impose tariffs as the genesis of the trade war, retaliated this week with higher duties on a revised list of $60 billion worth of U.S. products.

President Donald Trump, who has embraced protectionism and accused China of engaging in unfair trade practices, has threatened to put 25% tariffs on another $300 billion worth of Chinese goods.

With few options left for levying tariffs on U.S. goods, China could opt for other ways to pressure the United States, including blocking corporate mergers and other deals.

“There’s other things they can do, and M&A would certainly be one thing,” said Stacy Rasgon, an analyst with Bernstein.

While the United States wants significant changes in China’s approach to intellectual property rights and state subsidies as part of any trade deal, Beijing is insisting that all tariffs be eliminated.

The two sides are also at odds over how much more in U.S. goods China would have to agree to buy as well as how balanced the text of the draft trade agreement should be, Vice Premier Liu He, China’s lead trade negotiator, said last week.

Leave a Reply