Huawei’s future on hold as Trump ban puts pressure on Chinese telecoms powerhouse

World’s largest supplier of telecoms equipment finds itself at centre of escalating trade war between two largest economies

 

Huawei, the world’s largest supplier of telecoms equipment, has found itself squarely in the middle of a rapidly escalating trade war between the world’s two largest economies.

In the midst of it all, the company’s founder is relatively unperturbed. Ren Zhengfei says he had always expected a battle with US authorities: he just didn’t think it would happen this soon.

Washington and Huawei have been at loggerheads for several years, but US President Donald Trump brought the dispute to a new level last week when he declared a national emergency, empowering him to blacklist companies considered “an unacceptable risk to the national security”.

The US commerce department then put Huawei on what is called the Entity List, effectively banning American companies from providing technology to the Chinese telecoms giant.

The commerce department on Monday issued a 90-day reprieve on the ban, but this temporary measure is seen as being designed to give suppliers time to assess their compliance and carriers time to consider alternatives.

Reports from Washington suggest the Trump administration was keen on making this move for some time but held off on blacklisting Huawei until the trade talks faltered again.

Reaction

The reaction was immediate. Google announced over the weekend that it would be cutting off Huawei’s access to the company’s Android operating system, including its appstore.

Several US chip companies and other tech firms followed suit, saying they would respect the ban and stop supplying Huawei, which uses many US suppliers for semiconductors and software. It buys about $67 billion worth of components annually, including $11 billion from US suppliers such as Intel, Qualcomm and Micron Technology.

The move leaves Huawei in a dire position as it prepares to lead the global rollout of 5G networks. The bans will presumably weaken its position to win bids in Europe and elsewhere.

The US claims the Shenzhen company is a cybersecurity risk and has been putting intense pressure on European nations to keep Huawei out of any of its 5G network plans.

The move to isolate Huawei will be seen to be strengthening Washington’s hand in trade talks that have now dragged on for a year. Huawei denies it is a security threat, and points to the fact that, despite all the allegations over several years, the US has not produced evidence of any wrongdoing.

Huawei and Chinese government sources claim the blacklisting is essentially an American effort to curtail China’s economic growth.

Huawei is not the first Chinese company to feel Trump’s ire. The commerce department almost brought ZTE, a much smaller Chinese competitor of Huawei’s, to the point of implosion over allegations of sanctions busting before Trump let them off with a hefty fine after a phone call with President Xi Jinping.

Huawei will be hoping a similar deal can be arranged in this case, but there is no signal indicating that as a possibility for now.

Meteoric rise

Speaking this week to Chinese media, Ren said the latest US initiative would not stop his company’s growth. The firm was fully prepared, he said, as he had always felt a clash was inevitable because his company’s meteoric rise made Washington uneasy.

“I’ve sacrificed myself and family for the sake of our goal to stand on the summit of the world,” the 74-year-old former People’s Liberation Army engineer said. “To achieve this goal, a conflict with the US is inevitable.”

He said he had guessed the attack was coming, but it had happened a year earlier than he had expected.

“Last year, I guessed the US would attack us within two years, in which case we’d have plenty of time to prepare, but the Meng Wanzhou case made us realise it was happening sooner than I expected,” he said, referring to his daughter, the CFO of the company, who was arrested in Canada last year following an extradition request from Washington and remains under house arrest there.

The “current practice of US politicians underestimates our strength, and our company is well prepared”, he said, adding: “Huawei’s 5G will absolutely not be affected. In terms of 5G technologies, others won’t be able to catch up with Huawei in two or three years.”

He added that the 90-day temporary licence would not be a real benefit to his company. “It will not have much impact on us; we are ready.”

He admitted the company was going through challenging times but said its employees were all working overtime and they were stockpiling chips “as good as those made by US companies”, and other resources, so “we will not go through an extreme shortage of supplies. We have made sound preparations”.

He added the company did not want to exclude US chips “but if there is a supply shortage, we have a backup. In the ‘peace period’, half of our chips are from the US companies and half from Huawei. We cannot be isolated from the world.”

When asked how long these challenging times might go on for, he said: “You need to ask Trump about this, not me.”

China had already announced aspirations to be dominant in high technologies by 2025, and this latest fracas will only spur those efforts on. Huawei invests aggressively in research and development but, regardless of Ren’s comments, it does face a daunting task now if the ban remains in place.

It has issues on many fronts. Business opportunities in the US will evaporate and, in the near term at very least, their supply chains will be thrown into disarray. And it remains to be seen how much fallout there will be elsewhere.

Operating system

On the operating system side, Huawei has been working on its own platform to replace Google’s Android, reportedly called Hong Meng, but it is unclear how far along the development stage this project is.

With the Google ban fully in place, new Huawei phone users would not have access to Gmail, Maps and Youtube among other applications. And while that will not be a big issue in China itself – where they are blocked and people use indigenous equivalents – it will inevitably affect sales in other markets.

On the semiconductor front, Huawei’s chip design affiliate Hisilicon is also on the Entity List. That will deprive it of chip design software, lasers, tools and other resources it would ideally require to drive its development. Huawei will be left racing to replace multiple suppliers in a range of notoriously complex and specialised fields.

Speaking to The Irish Times, Joe Kelly, Huawei’s vice-president of communications, said that, on the specific supply chain issues, they would not be commenting at present but the company felt the latest Washington salvo was damaging for everyone.

“This decision is in no one’s interest,” he said. “It will do significant economic harm to the American companies, with which Huawei does business, affect tens of thousands of American jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain.”

Huawei will work to “mitigate the impacts” of this incident, the Donegal man said, and “seek remedies immediately and find a resolution to this matter”.

The Chinese state-run media reacted in a bellicose fashion to the ban, with the official Xinhua news agency declaring: “Old-fashioned protectionism seems to be regaining momentum in the United States . . . Yet the egoistic practices commonly used by the US will be a boomerang, hurting itself and casting dark clouds over the global economy.”

It closed with the view that this “myopic protectionism . . . and autarkic policies are unrealistic and go nowhere”.

The official China Daily said in an editorial that the US has revealed “all its ugliness in its dealings with other countries: its despotism as the world’s sole superpower without any respect for rules, its haughtiness and lack of respect for the dignity of its trade partners, its condescending attitude toward the rest of the world and its outright selfishness and unwillingness to accept that it is a member of a wider community”.

Similar angry comments have been widely present online in China too where many consider Huawei a source of great national pride, and the hashtag “Go Huawei! Go China!” has been trending all week.

In reaction to the media and online outbursts, Ren called for calm and warned against drumming up nationalistic fervour.

“We should stop others from shouting empty slogans and inciting nationalist sentiment,” he said.

Surveillance

Huawei is not the only Chinese tech company currently in Trump’s crosshairs. The US has also gone after at least five Chinese surveillance hardware makers this week on human rights grounds, including Hikvision and Dahua.

Hikvision, in particular, has expanded rapidly in recent years, with one of its major projects assisting Beijing in its efforts to surveil the Muslim Uighur population in the northwestern province of Xinjiang. There are currently an estimated one million Muslims detained in camps in Xinjiang, in structures the Chinese government refers to as “educational centres”.

President Xi Jinping was featured extensively in the state media this week visiting a rare earths processing facility. China dominates the rare-earth industry globally and while he didn’t mention the trade war his televised presence there was widely seen as a message to the US that they could, as a retaliatory jab, cut off supplies of this group of 17 chemical elements that are required for many technology components.

He was later filmed at a museum marking the starting point of the Long March, in which Mao Zedong’s Red Army undertook a military retreat in the civil war in the 1930s, trekking over thousands of kilometres, reportedly through gruelling conditions with many dying along the route.

Since the founding of the People’s Republic of China in 1949, the march is widely seen by China’s leaders as a symbol of the nation’s resilience and ability to overcome any kind of adversity.

“We are now embarking on a new Long March,” he told the national broadcaster, “and we must start all over again.”

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