President Donald Trump has just intensified the long standing feud between the United States and Chinese technology giant Huawei. After months of tense back-and-forth between the parties, Trump has blocked Huawei from using advanced semiconductors in its devices. The equipment necessary to make these chips is only available from U.S. companies, so Trump has officially made it impossible for any company using this American technology to sell to Huawei. The move has enraged the tech company, as well as the Chinese government, and is likely to send shock waves throughout the industry.
Leading Up To This “Nuclear Option”
Last May, Huawei, a major competitor to the American tech industry, was blacklisted over security concerns. The Trump Administration rolled out restrictions on the company’s access to U.S. components and software.
Huawei faced even more damage when the U.S. government began lobbying other countries to ban Huawei’s 5G networking equipment. Additionally, California-based Google pulled out from a deal with Huawei, which would have included its search engine on a new line of phones.
The feud with Huawei is deeply motivated by geo-political concerns. The Chinese government has promoted Huawei because it wishes to compete in the telecommunication industry on a global scale, much to the ire of President Trump. China, and its ruling Communist Party, are frequent targets of the American president’s scorn, and Huawei’s expansion into the international market did not sit well with Trump’s “America First” foreign and economic policy.
Trump’s contempt for Huawei has reached a fever pitch amid the coronavirus pandemic, which he has tried to blame on the Chinese. His decision this week to cripple Huawei’s operations comes at a time when Trump is trying to rally his base against China for under-reporting cases of COVID-19 at the onset of the crisis.
Some Heated Words
On Friday, Commerce Secretary Wilbur Ross hinted at the announcement before it was made, citing US security concerns as a motivator for the oncoming restrictions. “We must amend our rules exploited by Huawei and HiSilicon,” Ross said, “and prevent US technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.”
Huawei Chairman Gua Ping responded, “The US is leveraging its own technological strengths to crush companies outside its own borders….We expect our business will inevitably be affected. We will try all we can to seek a solution.” He also called the rule “discriminatory” and said it would harm billions of people.
Tensions were high even before this incident, with Huawei executives warning in a statement that “the Chinese government will not just stand by and watch as Huawei is slaughtered on the chopping board.”
Huawei currently has a one-year stockpile of advanced chips, which means it has just a few months to make it right with the US or find another provider of the necessary equipment.
Meanwhile, the Taiwan Semiconductor Manufacturing Company, or TSMC, is exploring its legal options. Huawei is its second largest customer, second only to Apple. TSMC is also Huawei’s sole supplier of requisite materials. The Taiwanese company is trying to uphold relationships with both countries, but also must acknowledge the huge hit this will have on its bottom line if it had to adhere to the US restriction.
Huawei could also try to move away from the TSMC custom chips, and instead buy generic chips. This would require a major shift in its technology design and business strategy that would likely bar them from being a strong competitor in the next few years.
There are other, broader potential outcomes for this situation. The US and Chinese governments could come to a compromise, which is likely if American tech companies find the disruption detrimental to their sales models, and lobby the government to make amends.
On the other hand, if no compromise is reached, China could be forced to start researching its own alternatives, which could strengthen the Asian super-power’s presence in the tech game in the long-run. But the US might be wise to consider the potential consequences of allowing China to ramp up tech without American participation. It might wise to broker a deal in order to slow the rise of a potential adversary.