The expected executive order barring U.S. companies from using telecoms equipment from manufacturers deemed a national security risk, with direct reference to Huawei, was officially signed by President Donald Trump. The order invoked the International Emergency Economic Powers Act, which gives the United States President the authority to regulate commerce in response to a national emergency that threatens the United States.
Almost immediately, the Commerce Department stated that Huawei and its affiliates would be added to the ‘Entity List’, shutting off the company’s access to U.S. suppliers without U.S. government approval. It is believed by analysts that Huawei would not be able to continue undamaged, given its reliance on certain components supplied by the US.
This escalation is generally attributed to the belief by the Trump Administration that Huawei has close ties to the Chinese Communist Party, and as such have built spyware into their products.
Moreover, Huawei’s initial response was captured in the following tweet, which they sent out soon after the executive order, “The U.S. is resorting to the same measures of restrictive state controls and trade barriers that it accuses China of using in their trade war.”
In addition, the Chinese Foreign Ministry Spokesperson stated that the Executive Order was politically motivated.
“The U.S. abuses export control measures and takes discriminatory measures on certain companies while making ‘national security’ a catch-all phrase. This is entirely against market rules and the principle of fairness, which does not serve the interests of the U.S. either. It is only natural for China to take all necessary measures to safeguard the legitimate rights and interests of Chinese companies.”
A similar U.S. supply chain crackdown on Chinese equipment manufacturer ZTE almost crippled the company. However, as part of the ongoing trade discussions between Washington and Beijing, concessions were made which prevented the complete demise of ZTE.
However, Huawei is different to ZTE ion that it is bigger. Huawei CEO Ren Zhengfei commented on the U.S. move, telling reporters in Shenzhen that “we have not done anything which violates the law. We will not change our management at the request of the U.S. or accept monitoring, as ZTE has done.”
Initial analysis suggested that Huawei’s whole $11 billion U.S. supply chain would be hit by the enforcement of the order. But on Friday, the Commerce Department announced that temporary arrangements to “prevent the interruption of existing network operations and equipment” are under consideration.
In essence, it has become clear that Huawei won’t be able to service existing customers if access to U.S. components from companies including Qualcomm and Intel is shut down. Any relaxation would be limited and temporary though, a general license for 90 days for maintenance but not for new products.
The CEO however was keen to play down such concerns. “We have already been preparing for this,” he said. “It is expected that Huawei’s growth may slow, but only slightly. Policies that threaten trading partners one after another rob companies of risk-taking attitudes and the U.S. will lose credibility.”
While, Huawei is better prepared to deal with the decision by the Trump Administration, than ZTE, the level of the ban and the intensity of the campaign against them are at a much higher level.
US allies are also not hundred percent behind the decision to ban Huawei. Britain’s foreign intelligence chief has stated that he is unconvinced of the need for an outright ban. Italy’s intelligence service has stated that they have no security concerns.
It is ineffective and superficial to analyse the Executive Order against Huawei, as separate from the current trade war between China and the US. In fact technology is central to a lot of the concessions demanded by both China and the US.
China is reported to have stepped away from the concessions demanded by the US in the Trade talks. This resulted in two decisions by the Trump Administration in less than a week. The first was the increase of tariffs on Chinese products, and the second is the Ban on Huawei. Therefore, these issues are deeply related, and can be seen as a mechanism for the Trump administration to punish China for not agreeing to its concessions