The breakdown in trade talks with China, coupled with President Trump’s executive order Wednesday requiring American companies to obtain government approval before selling to entities “owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries,” is leading to increased warnings that the deepening conflict will hurt domestic marketers.
“The Commerce Department on Wednesday announced it would add Shenzhen, China-based Huawei and its subsidiaries to a U.S. ‘entity list’ -- meaning it can keep Huawei from buying U.S. technology if ‘the sale or transfer would harm U.S. national security or foreign policy interests,’” Emily Feng reports for NPR.
“The Shenzhen-based company has said it spent about $11 billion on U.S. components last year out of a procurement budget of $70 billion. Experts said the impact of Washington’s move could extend as well to Huawei’s non-U. S. suppliers who deal in U.S. parts,” Dan Strumpf, Yoko Kubota and Wenxin Fan write for the Wall Street Journal.
“Huawei does business with Silicon Valley’s biggest names, including Qualcomm Inc. and Broadcom Inc. for smartphone chips, Intel Corp. for cellular-tower components, and Oracle Corp. for software. It also buys from many smaller technology suppliers spread across the country,” they add.
“Kevin Wolf, who was assistant secretary of commerce for export administration under President Barack Obama, described the impact of the U.S. sanctions as ‘massive,’” reports the AP’s Frank Bajak.
“He said they would have ‘ripple effects through the entire global telecommunications network.’ If Huawei ‘can’t get the widget or the part or the software update to keep functioning, then those systems go down,’ said Wolf, a partner at the Washington law firm Akin Gump,” Bajak continues.
“Huawei has the best technology for the 5G wireless infrastructure build-out, but without components from American suppliers, that technology just doesn’t work. They’re gonna get beat,” CNBC “Mad Money” host Jim Creamer said yesterday. “It could be the end for Huawei’s 5G leadership. That’s a huge blow to this pioneering company that many in the industry actually feel is nothing but an arm of the [Chinese] Communist Party.”
The repercussions go beyond the bottom line.
“Nothing stirs U.S. neuralgia so much as technology. Beyond the temporary jolt delivered by losing the space race to the Soviet Union during the 1950s, the U.S. has been consistently confident of its technological lead over adversaries,” Philip Stephens writes for the Financial Times.
“No longer. At a recent gathering of U.S. policymakers and experts, speaker after speaker took to the podium to voice fears that China is stealing a march in harnessing 5G digital technology and artificial intelligence applications to its military ambitions. The danger in all this speaks for itself. Treating China as a certain enemy is a sure way to persuade Beijing that it should behave as such. Mistrust begets mistrust, which in turn could provide the spark for open conflict,” Stephens continues.
Huawei “has effectively been shut out of the U.S. market since 2012, when a U.S. Congressional report said Huawei equipment could pose a threat to national security,” CNN Business’ Sherisse Pham reminds us. “The company has sold telecommunications equipment to a few small and rural wireless carriers, but doesn't report how much money it makes in the United States.”
Pham adds that North and South America combined accounted for less than 7% of the company's revenue last year.
“In a statement, Huawei said it opposed the Commerce Department's decision, saying it was ‘in no one's interest’ and would ‘do economic harm to the American companies with which Huawei does business,’” NPR’s Feng reports.
But the words out of Beijing’s news agency are less retrained.
In the New York Times this morning, Chris Buckley and Keith Bradsher offer several theories why Chinese leader Xi Jinping seems to have suddenly reversed direction on the trade talks.
“The official Chinese news media has described the United States this week as an ‘all-out bully,’ a ‘paper tiger’ and a schemer who, as in an ancient Chinese tale, entraps a guest by inviting him to a banquet. Xinhua, the official news agency, suggested that the United States was acting like a deluded colonialist holdover,” Buckley and Bradsher write.
“If anyone today regards China as the China of old, prey to dismemberment, as a ‘soft persimmon’ that can be squeezed at will, their minds are stuck in the 19th century and they’re deceiving themselves,” Xinhua said in an editorial.
Undoubtedly, it would be wise if both parties sat back down at the table, leaving the persimmon-like rhetoric behind.