Trump’s new chokehold on Huawei threatens the telecom firm and U.S.-China trade talks

When the Trump administration blocked U.S. firms last year from providing critical parts to ZTE Corp., it quickly paralyzed the Chinese telecom company and threatened to force it into bankruptcy — until President Trump issued a last-minute reprieve as a favor to Chinese President Xi Jinping.

Wednesday, Trump announced two measures to clamp down on Huawei Technologies Co. that could have much more severe and far-reaching consequences, not only for China’s champion telecom firm, but also on the increasingly fraught relations between the two nations, including the current standoff on trade.

This time, it’s far from clear that Trump will step in to give the Chinese a break. For months Trump has been locked in a high-stakes trade fight with Xi, with tensions having escalated since last week as Trump ratcheted up tariffs and Xi responded on Monday with counter-tariffs.

Trump’s executive order gave the Commerce Department sweeping authority to ban not just Huawei, but any Chinese information and communications technology company from doing business in the United States if the firm is determined to pose an undue risk to U.S. national security.

Separately, the Commerce Department said Wednesday it would add Huawei to its list of persons and entities deemed to be acting against U.S. security or foreign policy interests, meaning American firms will have to get government permission to export anything to Huawei and its affiliates. Some analysts say it is highly unlikely that U.S. companies will be given exemptions allowing them to sell to Huawei.

“It’s essentially a death knell,” said Samm Sacks, an expert on cybersecurity policy and China’s digital economy at New America, a nonpartisan think tank.

The huge unknown is whether Trump’s moves are meant to provide leverage for getting a favorable trade deal with China, or those actions — which have bipartisan support in Congress — are here to stay.

Tariffs have been Trump’s main tool for exerting pressure on trading partners, but at times, he also has spoken about cutting China a break on trade if its government helped him achieve other goals, such as denuclearization of North Korea.

Trump also has linked trade talks to December’s detention of Meng Wanzhou, Huawei’s chief financial officer. Meng, daughter of Huawei’s founder and chief executive, Ren Zhengfei, was arrested in Canada on U.S. charges for conspiring to violate U.S. sanctions on Iran.

“In the president’s mind, everything is negotiable, trade-able,” Elizabeth Economy, director for Asia studies at the Council on Foreign Relations, said in a conference call Thursday.

Meng is fighting extradition to the United States, a process that could take months if not years. Her lawyers have indicated that they will use Trump’s comment that he could intervene if it would help achieve a trade deal as evidence that her arrest was politically motivated.

Meng’s case has strained relations between Canada and China, with Chinese authorities arresting two Canadians in China on accusations of crimes related to national security in what many see as a retaliation.

Although the executive order Trump signed Wednesday had been long anticipated, its breadth surprised many analysts. The move to add Huawei to the Commerce Department’s Entity List came as a further shock. Although that decision was less stringent than a flat-out ban on U.S. exports to ZTE, the blacklisting was seen as draconian and potentially crippling to one of China’s proudest and most successful global companies.

Huawei does little business in the United States. The company, the world’s largest telecom equipment maker, has had a black eye in the U.S. for many years thanks largely to intelligence community warnings that Beijing could use the company for spying and other nefarious purposes.

But the Shenzhen-based firm relies on a long list of U.S. suppliers for its $100-billion-plus operations, including Flex, Qualcomm, Broadcom and Seagate Technology. After China, the United States is by far the largest source of supplies. Taiwan and Japan are a distant third and fourth, respectively.

If American firms aren’t able to get approval from the Commerce Department to sell to Huawei, that could have a significant effect on Huawei’s ability to do business. At the very least, the rapid growth that Huawei has enjoyed over the last decade would be slowed.

If Huawei lost access to U.S. chips, the company could fill the hole by turning to Samsung, based in South Korea. But that could be difficult if the U.S. pressured its ally.

Some analysts said Huawei might ultimately have to redesign some of its products if it loses access to U.S. components, some of which may not be easily replaceable. And there will be spillovers given Huawei’s size.

“This kind of thing creates a lot of havoc in the global supply chain,” said Paul Triolo, head of the geo-technology practice at Eurasia Group, a consultancy.

Moreover, the administration’s one-two punch could influence whether European countries and others decide to use Huawei equipment as they build their fifth-generation, or 5G, wireless networks. Huawei has a large presence in Europe, but the United Kingdom and Germany could have second thoughts about opening up the 5G work to Huawei if the company’s ability to deliver is seen as being jeopardized by the U.S. restrictions.

Huawei, which has 188,000 employees around the world, has been waging a publicity campaign to counter U.S. efforts to have others shun it. The company has also been stockpiling components and racing to develop its own supply capabilities in case the United States issued a ban like the one that hit ZTE.

On Thursday, Huawei issued a statement opposing the U.S. blacklisting action, saying it would do “significant economic harm” to U.S. companies, affect “tens of thousands of American jobs” and disrupt the global supply chain.

“Huawei will seek remedies immediately and find a resolution to this matter,” the company said. “We will also proactively endeavor to mitigate the impacts of this incident.”

American companies that sell directly to Huawei would feel a hit as well, but the biggest suppliers to the Chinese firm, such as Flex, Qualcomm and Broadcom, derive only a small share of their overall revenues from Huawei, according to company data. Some smaller firms have much higher exposure.

China, in comments released by its embassy in Washington and attributed to representatives of its foreign and commerce ministries, said: “We firmly oppose the act of any country to impose unilateral sanctions on Chinese entities based on its domestic laws, and to abuse export control measures while making ‘national security’ a catch-all phrase.”

“We urge the U.S. to stop its wrong practices, create conditions for Chinese and American companies to carry out normal trade and cooperation, and avoid causing more damage to bilateral economic and trade ties,” the representatives said. “The Chinese side will take necessary measures to safeguard the legitimate rights and interests of our companies.”

The Commerce Department will have 150 days to develop rules to implement Trump’s executive order, but the broad language of the directive suggests that any Chinese company having to do with the digital economy could be at risk of being prohibited from doing business in the United States, including U.S. firms that count on Chinese supplies. The impact could go beyond the telecom infrastructure to reach companies like the Chinese computer maker Lenovo, which has major sales and operations in the United States.

“Where’s the fallout going to be?” Sacks asked. “And for the global supply chain and the world where that has a ripple effect, it’s certainly going to be a factor,” she said.

But Derek Scissors, a China expert at the American Enterprise Institute, said the fact that the administration did not flatly ban doing business with Huawei, as it did with ZTE, indicates that they do not want to drive the firm out of business.

“There are certainly developments that could cause Commerce to deny all sales to Huawei, but that’s not what the order does, and it doesn’t do that because of a conscious choice by the administration,” he said. “I expect continued U.S. supply of some components to Huawei.”

At the same time, analysts don’t expect Trump to reverse the Commerce Department action and take Huawei off the blacklist, as he did with ZTE. That move, which was widely seen as a concession to China, brought a volley of criticism from congressional Republicans and other Trump allies.

In China, the near-death experience of ZTE was seen as a wake-up call for the company to develop internal supply capabilities and wean itself more quickly from foreign companies. The latest U.S. action targeting Huawei could further strengthen anti-American feelings, making the current trade conflict and other disputes harder to resolve.

The Entity List, in particular, will be seen by the Chinese as an aggressive action to contain China, experts said.

“There were many reasons why the United States is not off the mark in terms of going after Huawei,” said Economy, the Council on Foreign Relations scholar. She cited Huawei’s evasion of U.S. sanctions on Iran and cases of intellectual property theft, among other factors.

“But I think this last step does speak very directly to the Chinese,” strengthening the feeling that “the U.S. is just trying to contain our economic growth and our rise as a technological superpower,” Economy said. “I think it takes it a little bit over the line.”

Times staff writer Suhauna Hussain in Los Angeles contributed to this report.

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