Huawei’s Catch-22
On January 24th, the U.S. Commerce Department’s plan to further limit trade with Chinese tech giant Huawei (pronounced Wah-Way) was thwarted with the Pentagon opposing the ruling. At first glance, the headline seems confusing and conflicting as the Pentagon had been fighting tooth and nail to try to limit Huawei's presence in the U.S — viewing the company as a potential national security threat. Furthermore, in August, President Trump had declared “We’re not doing business with Huawei.” Why the sudden contradictory stance?
Founded by a former Chinese army officer in 1987, Huawei has become one of the world’s largest players in the telecommunications market, occupying a significant presence in China and EMEA (Europe, Middle East, Africa, Asia-Pacific) regions. In addition to being a smartphone producer and competitor to Apple and Samsung, Huawei has also created a worldwide cellular empire. Many U.S. companies had relied on their cell towers until 2012, where a U.S. panel feared that the Chinese government was using Huawei’s technology as a possible way to spy inside the U.S. Since the panel, many U.S. companies such as Verizon and AT&T succumbed to U.S. pressure and severed ties with the company.
Despite the U.S. blacklisting, Huawei has still seen significant growth, growing 18% from 2018 to 2019 and reporting $122 billion in annual revenue. Responsible for a significant portion of growth, has been the release of their latest smartphone, the Mate 30. Paired with its quest to become the first and largest producer of 5G network components and devices, Huawei was in great need of cell phone chips. In the past, they had relied heavily on U.S. companies such as Intel Corp. and Qualcomm Inc. Instead, Huawei has turned to both Dutch chipmaker NXP Semiconductors and to Chinese power amplifier producer HiSilicon as the main suppliers for the Mate 30. These products and producers are cheaper than their American equivalents. Additionally, Huawei has also looked at non-U.S. markets such as the U.K and Germany to expand. Both countries have also shown interest in allowing Huawei to operate within their respective countries.
Huawei’s ability to rapidly grow despite an intense U.S. ban shows not only their global influence but also their ability to rapidly shift from U.S. dependence. In an interview conducted by the WSJ, Huawei Founder and CEO Ren Zhengfei stated, “We can survive without the U.S.” John Suffolk, Huawei’s top cybersecurity official, also added, “All of our 5G is now America-free.” Some of this optimism can be attributed to Huawei’s new operating system, Harmony which will soon become a platform compatible with smartwatches, televisions, and computers.
While the Pentagon’s main objective has and always will be the nation’s safety, a significant loss in revenue from the Huawei ban could lead to the U.S being unable to fund their various defense programs including cybersecurity. Pentagon officials have also reasoned that Huawei will find ways to receive chips and other equipment regardless of the U.S. ban. Better it be the U.S. profiting, as opposed to rival countries or China itself. Pressured by the Pentagon, the Commerce Department decided to pull-back from signing a proposal that would have limited sales with Huawei. The standing agreement allows U.S. companies to sell chips and electronic goods to Huawei under the condition that the products are made with less than 25% of non-U.S. materials. The proposal, however, would have shaved down the percentage of the non-American material to 10%. Although this may seem advantageous from the U.S.’ perspective, as many American products are created using Chinese products, many U.S. manufacturers would be left in a very precarious situation.
In many ways, Huawei is the ultimate litmus test in the U.S.—China trade tensions. Although the Trump administration has remained firm on their demands, limiting Chinese trade could severely backfire. China, through Huawei’s success, has left the U.S. in an economic headlock. Huawei holds the keys to success for the telecommunication, manufacturer, and software industries, as they have billions of customers both domestically and internationally. For the foreseeable future, with its innovative and dynamic business model, Huawei is positioned for continuous growth.
Photo Caption: Chinese Electronics Huawei continues to grow
Photo Credit: https://1000logos.net/huawei-logo/
