US economic sanctions on Huawei could backfire

Posted on Thursday, May 16th, 2019 By Frank Bajak, AP Technology Writer

The Trump administration's plan to restrict exports to Chinese telecommunications powerhouse Huawei for national security reasons doesn't just up the ante in the China trade war.

It could also hurt U.S. suppliers and accelerate Beijing's drive toward greater technological independence.

The White House issued an executive order Wednesday apparently aimed at banning Huawei's equipment from U.S. telecom networks and information infrastructure. The U.S. government also said it was subjecting the Chinese company to strict export controls.

The U.S. government has long insisted that equipment from Chinese suppliers, including Huawei, poses an espionage threat. But U.S. officials have presented no evidence of any Huawei equipment serving as intentional conduits for espionage by Beijing.

About one-third of Huawei's suppliers are American and, ironically, many of the computer chips, memory and other components it gets from U.S. companies are made in China, said Roger Entner, founder of telecom research firm Recon Analytics.

The company's flagship smartphone, the Mate 20 Pro , includes chips made by Skyworks Solutions Inc. and a wireless receiver made by Integrated Device Technologies, both U.S. companies.

The U.S. sanctions are "going to have ripple effects through the entire global telecommunications network," said Kevin Wolf, who was assistant secretary of commerce for export administration under President Barack Obama.

If Huawei "can't get the widget or the part or the software update to keep functioning, then those systems go down," he said.

The Commerce Department said Wednesday evening that the restrictions would "prevent American technology from being used by foreign owned entities in ways that potentially undermine U.S. national security or foreign policy interests."

Huawei responded Thursday by saying that having to get U.S. government approval for all purchases of American technology is "in no one's interest."

"It will do significant economic harm to the American companies with which Huawei does business, affect tens of thousands of American jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain," the company said.

Huawei is already the biggest global supplier of networking equipment, and Entner said it is poised to overtake Samsung as the No. 1 smartphone manufacturer. He said Huawei is now apt to move toward making all components domestically. China already has a policy seeking technological independence by 2025.

What's not clear is whether the U.S. restrictions could include barring Google from licensing components and services of its Android operating system, which Google gives away for free to use on Huawei and other smartphones.

Former Commerce Department official Wolf said he would need to see a published order to be sure of the scope. Department and Google officials did not immediately respond to requests for clarification.

Entner said Huawei would likely be forced to ship its smartphones outside China with a stripped-down Android version used inside China. That package is missing Google's maps software and its Play Store, from which users buy and download apps, meaning Google could lose revenue.

While Huawei has its own mobile processors and chips, the U.S. semiconductor company Qualcomm is a major supplier, he said. Qualcomm declined comment but its regulatory filings indicate Huawei represented less than 10 percent of Qualcomm's revenue last year.

While the export controls could keep U.S. technologies away from Huawei, the separate executive order could effectively ban imports of Huawei products into the U.S. That order declares a national economic emergency that empowers the government to ban the technology and services of "foreign adversaries" deemed to pose "unacceptable risks" to national security — including from cyberespionage and sabotage.

Huawei vehemently denies involvement in Chinese spying and said blocking it from doing business in the United States would hamper the introduction of next-generation 5G communications technology. Huawei is a world leader in 5G, and Entner said Huawei's 5G devices use domestically produced technology, meaning they don't need U.S. components.

Huawei said the measure would instead limit U.S. companies and consumers to "inferior yet more expensive alternatives."

Adam Segal, cybersecurity director at the Council on Foreign Relations, said the executive order "signals to U.S. friends and allies how far Washington is willing to go to block Huawei."

But European nations have resisted U.S. entreaties to ban the company's equipment from their 5G networks. The leaders of Germany and the Netherlands made it clear Thursday that they don't plan to change their stance in light of the newly announced U.S. measures.

All major U.S. wireless carriers and internet providers had already sworn off Chinese-made equipment after a 2012 report by the House Intelligence Committee said Huawei and ZTE, China's No. 2 telecoms equipment company, should be excluded as enablers of Beijing-directed espionage.

Last year, Trump signed a bill that barred the U.S. government and its contractors from using equipment from the Chinese suppliers.

Huawei's smartphones are virtually nonexistent in the U.S., and last week the FCC rejected a Chinese phone company's bid to provide domestic service .

Huawei says it supplies 45 of the world's top 50 telecommunications companies. But only about 2 percent of telecom equipment purchased by North American carriers in 2017 was made by Huawei.

The domestic economic impact will be restricted mostly to small rural carriers for whom Huawei equipment has been attractive because of its lower costs. That could make it more difficult to expand access to speedy internet in rural areas.

Many of those carriers also provide roaming coverage for the major wireless companies.

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Associated Press writers Tali Arbel in New York and Joe McDonald in Beijing contributed to this report.

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