Trump's throttle of Huawei can come back on American technology

The Trump administration expanded its dragon week this week on Chinese companies unable to sell to the United States or buy components from US companies in a pressure to lower China's technological advances.

Having anchored Huawei, China's largest telecommunications company, the administration followed up by threatening to cut out American components or software to five Chinese video surveillance companies. But the plan may come back because US companies are so inextricably involved in the global technology supply chain.

Concerns about Washington's penalties and possible retaliation of the Chinese rattled markets throughout the week, hammering chipmakers and Apple. It is 5G that makes up most of Washington's fears ̵[ads1]1; by driving a wealth of upcoming technologies from self-driving cars to advanced medical procedures, the new wireless standard is set to be the backbone of the modern economy.

Until recently, Huawei, the world's largest provider of communications networking equipment and the second-largest smartphone manufacturer, appeared to be delivering that infrastructure. By cutting off the Chinese technological giant, the United States will only slowly expand the 5G. It's bad news for some of the most important US companies, especially component makers, who beat it for a huge increase in orders starting this year.

Without China's 5G network, consumers won't buy new phones containing chips from Qualcomm and Micron Technology. They will not generate data that must be crushed by processors made by Intel, Nvidia and Advanced Micro Devices. And there will be no need for faster network equipment powered by chips from Broadcom and Xilinx.

"I don't think it's good for the US economy," said Minyuan Zhao, an associate professor at the Wharton School's University at Pennsylvania. "With their strong institutions, the United States has long been an insurance force in the global supply chain. People do not always trust China, but they consider the United States as a trusted partner, if not a conservation manager, of the global economic system."

If supply chains can become arbitrarily interrupted and the trust disappears, the countries will begin to develop individual systems and the result will be worse and more expensive.

Made in China policy

Washington's attempt to hold the world's second largest economy increased about three years ago when Beijing first codified a broad ambition to take the lead in future technologies through its Made in China 2025 industrial policy.

Along with a formal plan to dominate artificial intelligence by 2030, the plans showed the country's will to trample billions of dollars into scientific research – a goal that spooked Washington bureaucrats worried that private US business and the military would remain in the dust .

Nevertheless, Chinese technology companies remain well behind their American counterparts in some key industries. The country still imports more semiconductors than oil, and no Chinese company has so far upgraded to Google or Microsoft. This threatens the threat of American technology from Huawei and its peers.

However, in other areas, they quickly realize. Huawei is already the largest supplier of 4G networks, and the equipment is the key to rolling out 5G networks in China, the largest smartphone market that will connect to it. US companies are keen to get that pool, with hundreds of millions of subscribers.

China's well-funded companies from Alibaba to Tencent and start-up as SenseTime smell the gap at AI with an unprecedented belief in user information that privacy-focused western rivals are afraid they will never match; Even consumer internet concerns such as Tencent and Ant Financial Services Group are leading in social media innovation and mobile payments.

Businesses such as General Electric, Alphabet, and Microsoft are concerned that export controls are being reviewed by Washington, related to technologies considered crucial to competitiveness, may actually prevent them from competing in lucrative markets while reducing US ability to innovate.

In a written message to the Department of Commerce, Microsoft announced that the proposed limitations could risk isolating the United States from international research collaboration and "counteracting US interests."

"Artificial intelligence is a very broad concept," GE quoted his own submission. Defined too broadly, the export controls can sweep things like medical imaging where algorithms are used to scan for diseases and toys, it said.

The breakdowns on Huawei and other tech companies have spread from the US-China trade war, which has been going on for several months. Trump has targeted technology companies because of suspicion that Chinese companies are helping Beijing to spy on foreign governments and steal US intellectual property rights. It's a risky move. "The more we continually confront economic warfare with national security interests, then we begin to look at all that national security," said Evanna Hu, CEO of Omelas, a security software company in Washington. "When you have a hammer, everything looks like a nail."

So far, American chip makers have probably suffered most from Washington's actions. Intel, Qualcomm, Xilinx and Broadcom have said they will cut supplies to Huawei further, according to people familiar with their actions. While their moving hamstrings Huawei, it also means companies will lose revenue.

China has threatened to assert itself. "This is the wrong behavior, so it will be a necessary answer," said Zhang Ming, China's EU chief in an interview in Brussels. Such a move can be detrimental to Apple.

Rising nationalist, pro-Huawei sentiment Apple could lose almost a third of its profits if China resumed by banning its products, Goldman Sachs analysts estimate this week. However, Apple could lose Apple's already worried business in China, and hobble iPhone sales and disrupt the company's supply chain. So far, there is no evidence that China intends to do so.

Dan Ives, analyst at Wedbush Securities, said 3% to 5% of iPhone sales in China could disappear over the next 12 to 18 months due to the US ban on Huawei.

When global markets have begun to imagine a new Cold War era between China and the United States, President Donald Trump said on Thursday that Huawei could "be included in some sort of trade deal" with China, witho Ut offering some details. The president also added that "Huawei is something very dangerous. You look at what they have done from a security point of view, from a military point of view, it's very dangerous."

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