Huawei Hit Hard by Ban, Causing Global Ripples

On May 15th of 2019, Washington announced that the United States would place Huawei on the Entity List. Different from the last ban on ZTE, which was supposed to last for seven years, being on the entity list has no definite ending. To trade with US companies, Huawei has to apply each case to the government for permission, whose approval will be near impossible to acquire. With 1,200 suppliers in the US, this ban means much more than losing the US market.

Huawei phones contain essential technology from the US that it cannot replicate itself, most notably being chips and software. EDA, the licenser of software for chip design, and ARM, the firm that owns chip architecture patents, have both revoked the licenses that Huawei's design unit HiSilicon uses. Moreover, the field-programmable gate arrays (FPGA) logic chips that Huawei phones extensively use are produced American firms like Intel and Xilinx. The Financial Times estimates that Huawei is at least a decade away from developing these technologies on its own. While Huawei has certainly stockpiled at least 6 months’ worth of chips, it will be difficult for the company to find components on par with American hardware for their phones in the future.

Huawei, now handicapped with the ban, faces encroachment from its competitors. Even with other hardware, the newer Huawei phones are barred from using Google products, which effectively neuters their ability to compete with their Chinese peers. When Google pushes out a new update for Android, Huawei must wait for the open source system to update. The Verge analyzes that for Huawei’s overseas markets, losing access to the Google Play Store, Gmail, and other essential features drastically dull its competitive edge. Moreover, as standard groups eject Huawei from their midst, the company’s devices will be without Bluetooth and other functions.

The ban may have also stunted Huawei's growth. With domestic sales stagnating, Huawei's overseas markets become increasingly crucial for long term survival. Although the company has been prepared for decreased sales in the US, it has not foreseen a similar effect in Europe. According to Bloomberg, European consumers are turning away from Huawei. Just in the first week of the ban, their phone sales dropped by 20% in France, and UK carriers have canceled phone launches, such as that of the Huawei Mate 20X5G. Ben Stanton, an analyst at Canalys, suggests that wary consumers fear "device[s] may lose features, be insecure, lose support or even lose tangible value," so they opt for other choices instead.

Huawei subsidiaries are also affected. On May 31st, Huawei sold its 51 percent stake in Huawei Marine Systems, citing difficulties to obtain contracts due to the company recent position in the limelight. Just recently, the Australian government blocked the undersea cable laying company from connecting Canberra to Hong Kong via Papua New Guinea.

Other companies in the US are not isolated from this situation. In a feat of retaliation, China created an “unreliable entity list” of its own and threatens to include American corporations. With firms like Apple drawing more than 15% of their revenue from the Chinese market, many companies are under the crosshair. 

Suppliers of Huawei can also feel the consequences of the ban as the company purchased US$11 billion worth of supplies from the United States in 2018. The suppliers range from Microsoft to Camalot Prodigy, the Huawei's manufacturing equipment supplier. Google and Facebook, which rely on preinstalled apps to collect data, will be affected especially. There is no doubt that Google realizes this fact, so the tech giant has petitioned to the Trump Administration to exclude it from the ban. Google argues that if Huawei develops its own operating system, the devices may be vulnerable to attacks, which would indirectly endanger the US phones they contact. While Google’s intentions behind these claims may not be as transparent, one thing is certain: Huawei’s suppliers will experience the unintended, rippling wave of consequences brought by Trump’s ban. 

The effects of the ban spilled out to other nations too. Both China and the United States are pressuring companies to either ignore or reinforce the ban. In June 2019, China called up a meeting with several corporations, like Microsoft and Samsung, to warn them of the consequences of obeying the United States demands. As New York Times notes, these firms are “stuck between a rock and a hard place” with China and the US are pressing firms to take a stance in this trade war. So far, the UK and Japanese based chip firm ARM and Panasonic have bowed to US demands and pulled out of business deals with Huawei. 

All is not lost for Huawei, however. On June 4th, Russell T. Vought (above), the acting director of the Office of Management and Budget proposed to defer the ban for two years to mitigate the side-effects of this ban. Both Chinese and American corporations will benefit from this reprieve. Suppliers from the US can adjust to the ban in the long run, while this short window gives Huawei more time to accelerate its path on being a self-sustaining business.