Huawei Continues to Struggle as Trade Pawn
Chinese mobile communications titan Huawei has begun to look at the path to recover, following global bans on its business. However, recent actions by the United States Department of Commerce suggest that the ban U.S. President Donald Trump said he would lift might actually remain in place for the time being. The confusion comes amid recent remarks from Trump following a meeting with Chinese President Xi Jinping wherein the two leaders discussed the year-long trade dispute.
Huawei became a powerhouse in the mobile industry by building cheap and efficient 3G networks across Europe and Australia. A decade later, it pushed Apple out of the number two spot for smartphone vendors, only shipping fewer handsets than Samsung, a South Korean manufacturer. When Trump decided to take on China over trade disagreements, the company became caught in the crossfire and as a result, was banned in the US, Australia, New Zealand, and Japan, alongside stricter regulations in the United Kingdom, France, and Germany. Investigations were also started in several other nations, none of which found Huawei to be a security threat.
The allegations of Huawei acting as an espionage arm of Beijing’s government took root in February, when US Vice-President Mike Pence railed against the company at the Munich Security Conference. There, he declared that Chinese law forces its companies to give access to any data transmitted by their devices or on their networks. Secretary of State Mike Pompeo broadly defined the implications of the Trump administrations ban, stating that the US government would be reluctant to continue intelligence-sharing with its allies if they continued to engage the Chinese business for mobile systems.
Trump issued an executive order in May that banned Huawei from supplying network equipment. Legislation from the US Congress backed up the ban by further restricting American companies from transferring and selling technology to Huawei. The technology industry quickly followed suit by cancelling business deals, such as Qualcomm’s wireless chips and Google’s Android operating system. In the span of a couple of months, Huawei’s international business became nearly nonexistent, aside from a deal to provide network infrastructure for Russia’s MTS mobile operator.
After Trump’s recent statement on the matter, the situation remains critical for Huawei. Although he publicly said American companies would be permitted to do business with the Chinese tech giant once more, the reality is that nothing changed. The commerce department continues to list Huawei on its Entity List, which severely handicaps the company from doing business in the US. While Huawei is essentially black-listed, American companies must apply for licenses from the US government to sell Huawei equipment and, pertinently in regards to Trump’s remarks, to enter business arrangements to supply technology to it.
So while the president declared one thing, his government is doing the opposite. Until the Department of Commerce removes Huawei from the black list, American companies will be reluctant to even consider orchestrating new business ties. Furthermore, given the turbulent nature of the US – China trade war, who can say whether or not Trump might have another change of heart and reinstitute the ban? If negotiations sour once again, he could just as easily slap the ban back on, thereby eliminating billions of dollars of sales.
Members of both political parties in Congress are displeased by Trump’s remarks, casting further doubt that Huawei’s status will be restored. Republican Senator Marco Rubio labeled Trump’s flip-flop “a catastrophic mistake,” arguing that by banning the company in the interest of national security then declaring it no longer an issue would undermine future US security warnings. Rubio then threatened veto-proof legislation to cement the ban if it is indeed lifted.
Another argument both Rubio and Senate Democratic Leader Charles Schumer promoted is the use of Huawei as leverage in the ongoing trade discussions. After the ban, Huawei cut its financial forecasts by a staggering $30 billion.
“Huawei is one of few potent levers we have to make China play fair on trade,” Schumer tweeted. It’s usefulness as a negotiating pawn should not be discarded so quickly.
Amid the ban on its equipment, Huawei also has to contend with the indictment of its Chief Financial Officer, Meng Wanzhou. She was arrested in December on charges of fraud based on allegations of cheating US banks to skirt sanctions against Iran. Her arrest sparked a feud between China and Canada, during which the former apprehended three Canadians, two on charges of espionage and another for drug smuggling.
Although Trump promised that American companies would once again be allowed to do business with Huawei, its future is even more complicated as a result. It remains on the commerce department’s black list, and should it manage to overcome that obstacle, will likely be banned a second time through bulletproof legislation. Its C.O.O. remains locked up in Canada, pending an extradition request to the US, and both issues will likely only be resolved once a trade deal is negotiated – a discussion that has seen little progress.