Donald Trump ups his battle with Huawei

By Bloomberg | 16 May 2019 at 11:37hrs
Huawei
Donald Trump ratcheted up his battle with China for dominance of 5G technology networks, moving to curb Huawei Technologies Co.'s access to the U.S. market and American suppliers.

The U.S. president signed an order Wednesday that's expected to restrict Huawei and fellow Chinese telecommunications company ZTE Corp. from selling their equipment in the U.S. Shortly afterward, the Department of Commerce said it had put Huawei on a blacklist that could forbid it from doing business with American companies.

The pair of actions risk aggravating Beijing as the American president seeks to pressure China's leaders into agreeing to a wide-ranging trade deal. Trump has threatened to impose tariffs on almost all imports from the world's No. 2 economy after last week hiking duties on some $200 billion in Chinese products.

In the executive order, which didn't name any countries or companies, Trump declared a national emergency relating to threats against information and communications technology and services. The Commerce Department's move to put Huawei on its "Entity List" means U.S. companies will need a special license to sell products to the Chinese company. A similar move against ZTE last year nearly forced the company to shut down before Trump intervened and a deal was reached.

Barring Huawei from buying American components could deal the Chinese giant a severe blow, and potentially impede the global roll-out of the fifth generation networks that are expected to support everything from autonomous cars to smart homes.

"The impact is well-beyond its 5G ambitions because without these American suppliers like Qualcomm and Marvell, it can't even keep a normal operation," said Roger Sheng, a China-based analyst with Gartner Inc. "One question remains unanswered though, is how strict will the U.S. execute the ban."

The administration has for months mounted an international campaign pinpointing Huawei as a security risk. U.S. prosecutors have indicted the company on charges of trade-secret theft and had Canada arrest a key executive on sanctions charges. Diplomats pressing allies to bar Huawei from 5G networks have said the company is subject to Chinese law that demands cooperation with security services, raising the specter of espionage. Huawei leaders have insisted their company operates independently of the Chinese government and that its products aren't used for spying.

Shares in the Chinese company's Asian suppliers, including Sunny Optical Technology Group and AAC Technologies Holdings Inc., tanked Thursday. Huawei is estimated to devote almost a fifth of its spending to American companies from Micron Technology Inc. to Qualcomm Inc. Blocking that supply not only threatens to wallop those U.S. suppliers' business, it could also impede Huawei from making everything from smartphones to networking gear. If that happens, countries and telecoms carriers around the world that are already shelling out billions to build 5G networks may have to rely on equipment from Nokia Oyj and Ericsson AB.

Restricting Huawei from doing business in the U.S. "will only serve to limit the U.S. to inferior yet more expensive alternatives," the Shenzhen-based company said in a statement in response to Trump's actions on Thursday.

Commerce Role

The executive order doesn't outright ban U.S. sales by the companies, but would give greater authority to the Commerce Department to review products and purchases by firms connected to adversarial countries, including China. Commerce, in conjunction with national security agencies, is expected to determine who's considered an adversary as part of regulations to be written in the next 150 days.

Technology or services "designed, developed, manufactured or supplied" by companies subject to the jurisdiction of U.S. rivals, "augments the ability of foreign adversaries to create and exploit vulnerabilities in information and communications technology and services, with potentially catastrophic effects," the order says.

Trade talks between the U.S. and China are teetering after Beijing reneged on tentative agreements, according to the president and American officials. An administration official said Tuesday that the order on telecommunications technology is unrelated to the recent escalation of the trade conflict.

The officials asked not to be identified discussing the order because it concerns national security.

The Commerce Department's blacklisting of Huawei isn't effective until it's listed in the Federal Register. The department didn't say when that would occur.

Both Huawei and ZTE have also been targeted by the U.S. for alleged schemes to dodge American sanctions on Iran. Canadian authorities last December arrested Huawei's Chief Financial Officer Meng Wanzhou at the request of the U.S., which seeks her extradition over allegations of violating Iran sanctions.

Meng, the daughter of Huawei's founder, remains under house arrest in Vancouver while the legal proceedings unfold.

International Campaign

The administration has urged allies to analyze risk before buying gear, Robert Strayer, deputy assistant secretary for cyber policy at the State Department, told the Senate Judiciary Committee at a hearing on Tuesday.

"We are concerned that China could compel actions by network vendors to act against the interests of U.S. citizens and citizens of other countries around the world," Strayer said.The U.S. says Chinese law compels Huawei to cooperate with Beijing's espionage agencies. U.S. officials say Huawei can build vulnerabilities, or backdoors, into equipment.

Last week, the U.S. Federal Communications Commission barred China Mobile Ltd. from the U.S. market over national security concerns and said it was opening a review of other Chinese companies.

The administration official said Wednesday that the Commerce Department was expected to take as long as six months to fashion an approach to the order, so there might not be an immediate effect. The government may eventually prohibit products from specific companies or countries as Commerce carries out Trump's order.

The U.S. has sought without much success to persuade other governments to exclude equipment made by Huawei from super-fast 5G mobile networks that will connect billions of devices.

At least one prominent Democrat praised Trump's decision. "This is a needed step, and reflects the reality that Huawei and ZTE represent a threat to the security of U.S. and allied communications networks," Senator Mark Warner of Virginia, the vice chairman of the Senate Intelligence Committee, said in a statement.

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