On Wednesday, the US Commerce Department announced that Chinese telecommunications giant Huawei will be placed on an export control list, which could pave the way for a ban on US sales to the company.
The announcement was overshadowed by an executive order signed by President Donald Trump that restricts Huawei from doing business in the United States. But the decision to place Huawei on the so-called “Entity List,” has the potential for significantly more far-reaching consequences.
Contrary to a conception widely held among Trump administration officials and lawmakers, the consequences may be more catastrophic for US technology companies than for Huawei, experts say.
The move is different from the Trump administration’s punitive ban on exports to Chinese telecoms firm ZTE, which was enacted and then repealed last year, and does not immediately prohibit the sale of US components to Huawei. Once the listing is officially published, US companies will be required to obtain a special license to sell to Huawei.
Unintended consequences
“Huawei has been stockpiling some US components for the last few weeks, which suggests that there are some [US components] it will be unable replace,” Jim Lewis, senior vice-president and technology specialist at the Center for Strategic and International Studies, told Asia Times.
But, he added: “I don’t think this will be a ZTE near-death-like experience since I expect Commerce to license some US technologies, at least for a while.”
It is also distinct from the ZTE ban – which threatened to put the company out of business – in that experts see Huawei as resilient even to an outright export ban.
According to Jimmy Goodrich, vice-president of global policy at the Semiconductor Industry Association, Washington runs huge risks with such a move.
“There’s really no segment of the industry that’s dominated entirely by US companies … If the US acts unilaterally in this space, then they’re really just going to end up hurting innovation in the US and China’s still going to get the technology that they’re concerned about,” Goodrich said at a recent panel discussion in Washington.
“We have to think about the unintended consequences,” he added. “Going back a year ago, we all know what happened with ZTE. Not out of coincidence, China announced several hundred million dollar programs to accelerate the localization of a lot of the 5G components. And so, are we going to just drive them to be better, more independent of us because of that?” Goodrich asked.
Washington in the dark
While some semiconductor industry insiders in the US are wary of the danger export bans pose to domestic companies, Washington has been slow to comprehend the extent of strides already made by China.
According to a recent analysis from Japanese research firm Techanalye, Huawei is already on par with Apple in terms of 4G chip design for smartphones. The research suggested that Huawei may already or soon be capable of rivaling US semiconductor-maker Qualcomm in mobile chip design. For the moment, Qualcomm is the still arguably the world leader in mobile chips, but that is thanks in large part to the 65% of its revenue that comes from China.
But the Trump administration and lawmakers on both sides of the political aisle have not gotten the memo.
Republican Senator Marco Rubio said he enthusiastically supports the Commerce Department’s decision to issue a “denial of export privileges against Huawei.”
“Huawei is a state-directed instrument of national power used by the Chinese government to destroy their international competitors,” Rubio said.
Tom Cotton, a Republican Senator who co-sponsored a bill earlier this year that would, if passed, place an outright export ban on Huawei, sees the Commerce Department’s decisions as a death sentence for Huawei.
“@Huawei 5G, RIP. Thanks for playing,” he wrote on Twitter.
.@Huawei 5G, RIP. Thanks for playing. https://t.co/Rltwqj52AW
— Tom Cotton (@SenTomCotton) May 15, 2019
Implications for trade war
A tepid official reaction from Beijing – and from Huawei – is more evidence that figures in Washington such as Rubio and Cotton who think this represents a crushing blow are wrong in their assessment.
“The trade talks face a number of challenges – a new licensing requirement for Huawei is a minor one,” Derek Scissors, a China specialist at the American Enterprise Institute, told Asia Times.
“Because the Department of Commerce can either be lenient or strict in licensing, it does provide the US with a bit more leverage in the talks. But only a bit, given all the other issues involved,” he said.
Chinese foreign ministry spokesperson Lu Kang said that “we ask our companies to follow the laws and regulations on export control and fulfill our due international obligations. We ask our companies to observe local laws and policies when doing business overseas.”
But, Lu added, China urges the US to “stop its wrong practices.”
Huawei said in a statement that “restricting Huawei from doing business in the US will not make the US more secure or stronger.”
“This will only serve to limit the US to inferior yet more expensive alternatives, leaving the US lagging behind in 5G deployment, and eventually harming the interests of US companies and consumer,” the statement went on.
Goodrich of the Semiconductor Industry Association, for his part, urged policymakers in Washington to rethink their approach.
“At the end of the day, do we want American chips over there or do we want Chinese ones?” he asked.
If the US blocks its own chip-makers out the Chinese market, asking that question will be a fruitless exercise.