The Trump administration has launched a dramatic attack on Huawei by requiring US companies to obtain licences to sell critical technology to the Chinese telecoms company.
The White House and US Department of Commerce took dual actions on Wednesday that will effectively ban Huawei from selling technology into the American market, and could also prevent it from buying semiconductors from Qualcomm in the US that are crucial for its production.
Donald Trump issued an executive order declaring a “national emergency” in relation to threats against US telecommunications, in a move that authorised the commerce department to “prohibit transactions posing an unacceptable risk” to national security.
In a potentially much more significant development, the commerce department put Huawei on the so-called Entity List — a move that means US companies will now have to apply for a licence to sell technology to the Shenzhen-based telecoms company.
Tom Cotton, a hawkish Republican senator from Arkansas, welcomed the decision by the Trump administration by tweeting: “@Huawei 5G, RIP. Thanks for playing.”
Samm Sacks, a cyber security and China expert at New America, a Washington-based think-tank, said placing Huawei on the blacklist would have “ripple effects” around the world.
“Networks across Europe, Africa and Asia that rely on Huawei equipment will feel the impact because Huawei relies on US components,” Ms Sacks said. “That’s why this was always the nuclear option.”
Paul Triolo, a technology policy expert at Eurasia Group, a risk consultancy, said putting Huawei on the Entity List was a “huge development” that would not only hurt the Chinese company but also have an impact on global supply chains involving US companies such as Intel, Microsoft and Oracle.
“The US has basically openly declared it is willing to engage in a full-fledged technology war with China,” he said, adding that placing Huawei on the “dreaded Entity List has global ramifications, as Huawei supplies dozens of leading carriers around the world”.
Asian benchmark stock indices were little changed following the US move, which follows heightened trade tensions between Washington and Beijing with both sides imposing increased tariffs on each in recent days. But Huawei-related companies were lower, with stocks of Sunny Optical and AAC Technologies, which are suppliers of the Chinese equipment maker, falling 3.8 per cent and 1.1 per cent in morning trading in Hong Kong.
The Entity List is the Department of Commerce’s index of individuals, companies, and other organisations that are seen as posing a risk to US national security. While proliferation of weapons of mass destruction or terrorism are among the potential reasons for getting listed, the US government can also put companies on the list for unspecified risks to security or even just foreign policy goals of the country.
Although inclusion in the list is one step down from being designated a “Denied Person” — the total ban that was imposed on ZTE, another Chinese telecom equipment company, last year — US export control authorities say that applications by US suppliers for licences to export to listed companies are “usually subject to a policy of denial”.
Don Vieira, a former top national security lawyer at the US justice department, said the moves on Wednesday suggested that the White House had given the intelligence agencies and commerce department a green light to “take on” Huawei.
“I don’t know if the US can destroy Huawei, but maybe the US government can get some concessions,” said Mr Vieira, who is a partner at the Skadden Arps, Slate, Meagher & Flom law firm.
Huawei responded to the US measures by saying it was ready to engage with the US government to come up with measures to ensure the security of its products.
“Restricting Huawei from doing business in the US will not make the US more secure or stronger; instead, this will only serve to limit the US to inferior yet more expensive alternatives, leaving the US lagging behind in 5G deployment, and eventually harming the interests of US companies and consumers,” Huawei said.
“In addition, unreasonable restrictions will infringe upon Huawei’s rights and raise other serious legal issues.”
Eurasia Group’s Mr Triolo said the US government could give some firms licences to sell to Huawei but the threat of denial meant “any carrier using [Huawei’s] gear will have to reconsider continuing to rely on the company for existing and next generation 5G networks”.
Qualcomm declined to comment on Huawei being put on the Entity List. The Chinese firm licenses the US company’s intellectual property for use in smartphones, although this accounted for less than 10 per cent of its firm’s total sales in 2018.
Dennis Wilder, a former head of China analysis at the CIA, said the combination of the executive order and listing on the Entity List was part of a “full court press” against Huawei that represented “the beginning of decoupling” from Chinese telecoms.
The actions against Huawei come after a period in which the White House — backed by career security professionals — has warned about the risks of allowing the Chinese company to help countries build their next-generation high-speed 5G networks.
Australia and Japan have joined the US in banning Huawei but Washington has struggled to persuade other allies such as the UK and Germany to follow suit.
Semiconductor industry executives and analysts said the impact of Huawei being put on the Entity List was unclear as it remained to be seen whether the US government was prepared to issue any licences for export to the company.
Credit Suisse said in a research note in December that the supply chain would be hit harder by a full export ban on Huawei than that on ZTE because Huawei is more focused on telecom infrastructure equipment and high-end smartphones.
“With Huawei’s high portion of business from networking equipment and high-end mobile devices, the impact on Huawei and its supply chain from a potential denial of export privileges from the US Department of Commerce against Huawei would be material,” Credit Suisse said in the report.
It estimated that 20 to 30 per cent of Huawei’s materials bill is related to semiconductors — equivalent to $15bn worth of chips, or 3.8 per cent of global industry production compared with only 0.5 per cent for ZTE.
Additional reporting by Alice Woodhouse in Hong Kong