Huawei blacklisted by US starting Friday

Targeting the Chinese tech giant’s bottom line may end up hurting the US and international companies.

The ban on United States companies selling parts to Huawei will take effect on Friday, the US commerce secretary has said.

Wilbur Ross told Bloomberg news agency on Thursday that the new regulations will bar Huawei from acquiring components and technology from US firms without government approval.

Huawei Technologies Co. Ltd. and 70 affiliates are being added to the US Commerce Department’s “entity list”. The move makes it difficult – if not impossible – for the firm to sell certain products, due to reliance on US suppliers.

Ross said in a statement on Wednesday that President Donald Trump sought to “prevent American technology from being used by foreign-owned entities in ways that potentially undermine US national security or foreign policy interests”.

The dramatic move comes as the Trump administration has aggressively lobbied other countries not to use Huawei equipment in next-generation 5G networks. And it comes just days after the Trump administration imposed new tariffs on Chinese goods amid an escalating trade war.

US officials have long feared the Chinese government could use Huawei’s equipment to spy on Americans.

Blacklisting Huawei is likely to have ramifications beyond the company itself: Not only might it disrupt Huawei’s business, but it could also hurt its US suppliers. 

A broad US crackdown, announced on Wednesday in an executive order, was the latest shot fired in an escalating trade war that is rattling financial markets and threatens to derail a slowing global economy.

‘Find a resolution’

The Trump administration’s decision to target and potentially cripple Huawei garnered a sharp rebuke on Thursday.

Officials in China said US aggressiveness could hurt trade talks, which appeared to have hit an impasse in the past week as Washington hiked tariffs on Chinese goods and Beijing retaliated with higher duties on US products.

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

Meanwhile, share prices for Huawei’s US suppliers fell due to fears the massive buyer of US chips, software and other equipment would be forced to stop purchases after the ban takes hold.

Huawei said in a statement that losing access to US suppliers “will do significant economic harm to the American companies” and affect “tens of thousands of American jobs”.

Out of $70bn that Huawei spent on component procurement in 2018, some $11bn went to US firms including Qualcomm, Intel and Micron Technology Inc. And they could see that revenue disappear.

Huawei said it will “seek remedies immediately and find a resolution to this matter”.

The company reported first-quarter revenue of $27bn last month and said it had shipped 59 million smartphones in the first quarter. Revenue for the company, also the world’s second-biggest maker of smartphones, touched 721 billion yuan ($105bn).

‘Upsetting the United States’

The pain for Huawei’s supply chain would be redoubled if the trade war were to send shock waves through the larger Chinese technology industry.

“The bigger concern would be [that] US allies that used to buy Huawei’s components may not continue businesses with Huawei, because of fear of possibly upsetting the United States,” said Doh Hyun-woo, an analyst at NH Investment & Securities in Seoul.

Huawei has spearheaded China’s campaign to develop its own high-end technologies to reduce reliance on foreign imports, and such efforts have taken on urgency after US sanctions on ZTE.

In March 2016, the US Commerce Department added ZTE Corporation to the entity list over allegations it organised an elaborate scheme to hide its re-export of US items to sanctioned countries in violation of US law.

The restrictions prevented suppliers from providing ZTE with US equipment, potentially freezing the Huawei rival’s supply chain, but they were short-lived. The US suspended the restrictions in a series of temporary reprieves, allowing the company to maintain ties to US suppliers until it agreed to a plea deal a year later.

In August, Trump signed a bill that barred the US government itself from using equipment from Huawei and ZTE.

Source: Reuters