Washington wants to completely cut Huawei off from U.S. suppliers

The Biden administration has stopped approving licenses for U.S. companies to supply Huawei, and is considering a broader move to completely cut off the Chinese telecommunications giant from all of its American suppliers.

“The U.S. punishment of Huawei has already been quite severe, and the big losers in this new policy will be U.S. firms,” Paul Triolo, the head of the Technology Policy and Strategy Group at Denton’s Global Advisors, told The China Project. “The move is also coming at a time when the semiconductor industry is in a sharp market downturn, so the Biden administration’s actions will add further pressure to the bottom line of leading U.S. semiconductor suppliers to Huawei.”

Once the poster child for China’s booming tech sector, Huawei has been mired in controversy in the U.S. for alleged links to the Chinese military, and has been accused of helping China conduct espionage through surveillance. Both the Chinese government and Huawei have vehemently denied any involvement in spying: “This is political persecution, plain and simple…Attacking Huawei will not help the U.S. stay ahead of the competition,” the company said in a statement in 2020.

The company’s former CFO, Mèng Wǎnzhōu 孟晚舟, was also charged in 2019 with bank and wire fraud related to breaching U.S. sanctions on Iran, and later detained in Canada before her high-profile release after Beijing agreed to release two Canadians who has been detained in China, apparently as hostages.

Beijing responded to the latest curbs on sales to Huawei in today’s Foreign Ministry briefing: China is “gravely concerned” and “strongly opposes the U.S.’s unscrupulous and unjustified suppression of Chinese companies by stretching the concept of national security and abusing state power,” spokesperson Máo Níng 毛宁 said. “Such moves violate the principle of market economy and international trade rules, dampen international confidence in the U.S. business environment, and amount to sheer sci-tech hegemonism.”

Do U.S. companies stand to lose $61 billion worth of sales to Huawei?

In 2019, the former Trump administration had blacklisted Huawei on its “Entity List,” a move that restricted most U.S. suppliers from selling goods and technology to the company unless they were granted licenses. The ban was extended in 2020 to cover all sales of semiconductors or the parts that make them to Huawei, further restricting the company’s access to key technology that powers most of its products.

“By putting Huawei on the dreaded Commerce Department Entity List, the Trump administration provided no guidance to export control officials about which of Huawei’s many products, including many consumer goods, was of national security concern,” Triolo told The China Project.

Huawei had started off in 1987 by manufacturing phone switches, but grew into a telecom giant over years of breakneck growth — to a point where it overtook Apple in 2018 as the second-largest manufacturer of smartphones in the world. But since the U.S. placed it on its painful trade blacklist, the company has been diversifying its products. It still makes and sells smartphones to consumers, and a variety of products that are needed to build 5G mobile networks to companies and governments around the world, while also investing heavily in a vertical semiconductor manufacturing supply chain, cloud services, and even clean energy projects.

But while Huawei evolves, the U.S. commerce department has continued to grant export licenses for some American companies, including Qualcomm and Intel, to provide Huawei with some products that were not related to high-speed 5G telecom networks (such as 4G smartphone chips). Suppliers were granted $61 billion worth of licenses to sell to Huawei from April through November 2021.

“The latest move against Huawei reflects the complex nature of the U.S. export control system applied to a global multinational company with multiple business lines,” Triolo told The China Project. A U.S. Congressional Research Report from March 2022 claimed that “a lack of restrictions on 4G, 6G, cloud, and, until recently, undersea cable technologies has allowed Huawei to purchase U.S. technology.”

“Because most of what Huawei was buying from U.S. companies was commodity semiconductors, commerce officials over the past three years have issued a large number of licenses, given the importance of Huawei purchases for the revenue of leading U.S. technology companies,” Triolo added. “Now, in the more fraught political climate of U.S.-China relations, Republican critics of China in Congress are demanding that Washington plug what they view as loopholes in the export control system that has allowed Huawei to continue to acquire U.S. semiconductors and other components.”

Last November, the U.S. Federal Communications Commission barred the sale or import of equipment made by Huawei, and its Chinese rivals ZTE and Hytera Communications, as well as gear from surveillance equipment makers Dahua Technology and Hikvision.

The Biden administration’s latest move against Huawei also comes just a few days after Japan and the Netherlands agreed to join U.S. restrictions on the flow of advanced chipmaking technology to China, in a related but different effort to stymie China’s development of cutting-edge technology.

The trilateral agreement expands on the sweeping set of export controls the Biden administration unveiled back in October, which were an extension of the “foreign direct product rule” initially tested out on Huawei during the Trump administration — and later used against Russia after its invasion of Ukraine.

“Pressure from House Republicans, who are likely to launch a 90-day review of the Commerce Department’s Bureau of Industry and Security (BIS), which oversees licensing, means that commerce officials are now reversing the department’s more lenient policy that allowed U.S. technology firms to continue to derive significant revenue from sales of commodity semiconductors to Huawei,” Triolo told The China Project.

Intel and Huawei both declined to comment.