SOME MAY have wondered why it took so long. An American prohibition against the use of equipment made by Huawei had long been mooted, out of fear that China’s spooks could use it to spy on its geopolitical rival. The largest Chinese telecoms firm has in effect been prevented from selling its kit in America since 2012. Big American mobile operators have already renounced the use of its gear for their fifth-generation (5G) networks. The administration of Donald Trump has attempted to browbeat Western allies into forswearing Huawei too; imposing a ban of its own was expected to help with the cajoling. Until now, the only other country to have enacted one is Australia.
Yet the executive order that Donald Trump issued on May 15th, declaring a national emergency, was much broader in scope than most had anticipated. It named neither Huawei nor China explicitly. But it said that “foreign adversaries”, keen to spy on America, were “creating and exploiting vulnerabilities” in local technology and services that store “vast amounts of sensitive information” and “facilitate the digital economy”. It said that unrestricted acquisition or use of such technologies was “an unusual and extraordinary threat to the national security, foreign policy and economy” of America.
Some of the ban’s woolliest bits—who counts as a foreign adversary, for instance—should be clarified with the help of American spies within the next 150 days. But if there was any doubt about its chief intended target, a separate ban issued later that day made things crystal clear. The Department of Commerce said that it has added Huawei to a list of companies deemed a risk to American national security. When it takes effect (the timing is unclear), dozens of Huawei’s affiliates will be prohibited from buying hardware and software from American firms without government approval.
In a statement, Huawei said it is “ready and willing to engage with the US government and come up with effective measures to ensure product security” and that restricting it would only limit America to “inferior yet more expensive alternatives”. It also said that “unreasonable restrictions” would raise “serious legal issues”.
Samm Sacks of New America, a think-tank in Washington, DC, says that this direct interdiction is “a complete shock”. It had for months been talked about among companies and those close to policymakers as the “nuclear option”. Unlike in the case of ZTE, another Chinese telecoms giant that was briefly banned outright from sourcing American parts and software last spring, Huawei can continue to buy them as long as its foreign suppliers secure licences. But companies are being told that there will be no exemptions, according to Ms Sacks.
Observers nonetheless expect a rush to apply for such licences. Those who doubt, for now, that a blanket American ban is inevitable say its intent is to make Huawei’s kit look like a less dependable option to service providers elsewhere. In Europe, any orders for gear that Huawei had been expecting, for instance, will now be upset. Reports emerged earlier this year of international telecoms carriers stockpiling equipment, as fears of an American ban grew. Some were burnt by the ZTE prohibition, which denied them access to warehouses holding gear that they had already bought.
When ZTE was banned in April 2018, the effect was crippling. In 2016 UBS, a bank, had estimated that at least four-fifths of its products relied on American parts. Chips designed by America’s Qualcomm were in about 70% of its smartphones. ZTE posted a loss of 7bn yuan ($1bn) for 2018, compared with a profit of 4.6bn yuan the previous year. In barely three months the ban brought the company to the brink of bankruptcy, before it earned a reprieve from Mr Trump, after a personal appeal from China’s president, Xi Jinping.
Few observers expect Huawei to flirt with bankruptcy in the way zte has. But it, too, looks vulnerable. Although its HiSilicon unit designs some of its chips in-house, the company outsources their manufacturing to Taiwan Semiconductor Manufacturing Company, a giant chipmaker, which could be swayed by the Americans. The only other factories capable of producing cutting-edge chips are owned by Samsung, a South Korean firm—and South Korea is another American ally. Like all makers of mobile chips, it relies heavily on intellectual property licensed from ARM, a British firm. Products from its handsets to data centres and cloud-computing services could all be hurt by the ban.
Coming amid an intensifying trade war between America and China—and given the ZTE precedent—the ban on Huawei may also be a bargaining chip in talks. At a minimum, it will be used as one with recalcitrant European allies. But as officials hash out the scope of Mr Trump’s executive order, more than just the usual suspects could find themselves ensnared. Ms Sacks says that it could become a “discretionary tool” for America to use against Chinese companies as it sees fit—including against perceived risks to the country’s entire digital infrastructure. Its wording is broad enough to encompass all manner of Chinese technology firms, from e-commerce and digital-payments giants like Alibaba to hardware-makers such as Lenovo. That would be a worrying prospect indeed.
This post was originally posted at https://www.economist.com/business/2019/05/16/donald-trump-gets-tough-on-huawei.