China Weekly Letter - US pulls out the heavy weapons by targeting Huawei
- The US blacklisting of Huawei is a clear escalation of the trade war; Xi-Trump meeting in June could be at risk
- Xi Jinping prepares people for a new 'Long March' and calls for self-reliance
- Poor US manufacturing data challenges Trump's 'maximum pressure' strategy
US ban on Huawei is significant
This week it became clear that the US is pulling out the heavy weapons to pressure China into offering concessions in the trade war . After Washington put Huawei on the so-called 'entity list' a wide range of US suppliers to Huawei announced they had to halt deliveries. Among the companies were chip makers Intel Corp., Qualcomm Inc. and Broadcom Inc. Google has cut off the supply of hardware and some software products to Huawei, meaning that Huawei mobile device users will not be able to use Google apps such as Gmail, YouTube and its Google Play app store. The ban also affects international companies outside the US if their products have more than 25% content of US products. It led several global technology companies to put a halt to deliveries as well. The US Commerce Department granted a 90-day reprieve on the ban, but the move was limited in scope and mainly to give users time to adjust to the change.
China has not yet retaliated to the blacklisting of Huawei, but Chinese Commerce Ministry spokesman Gao Feng said at a weekly briefing that negotiations can only continue if the US 'correct their wrong actions'. He added that China would closely monitor relevant developments and 'prepare necessary responses'.
Huawei founder, Ren Zhengei, said a clash with the US had been 'inevitable' because Huawei's aim to be a global leader threatened US interests. Ren claimed Huawei has been preparing for this and that the ban would not impact Huawei's 5G plans. According to some analysts, Huawei has built an inventory of US product supplies to maintain production for the rest of the year. Huawei's own chip company HiSilicon struck a defiant tone on Friday last week, saying the company had prepared for a US ban for some time through development of its own chips and that Huawei will aim to be self-reliant going forward. However, tech experts are not convinced by Huawei's back-up plan,as Huawei most likely still depends on US and other foreign technology companies in many different areas.
US President Donald Trump hinted on Thursday that the Huawei ban could be part of a trade deal . On the prospect of a deal he stated "It's happening, it's happening fast and I think things probably are going to happen fast with China because I cannot imagine that they can be thrilled with thousands of companies leaving their shores for other places". A China adviser this week said the latest events meant that a Xi-Trump meeting at the G20 meeting in Osaka in late June was now 'up in the air '.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
