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International Journal of Commerce and Economics
22
International Journal of Commerce and Economics
Online ISSN: 2664-7540; Print ISSN: 2664-7532
Received: 05-02-2019; Accepted: 07-03-2019
www.commercejournal.in
Volume 1; Issue 2; April 2019; Page No. 22-25
Huawei ban in the US: Projected consequences for international trade
Md Sajjad Hosain
Business School, Sichuan University, No 24, South Section 1, Yihuan Road, Chengdu, Sichuan Province, PRC, China
Abstract
On May 19, 2019, the US President Donald Trump made an executive decision of blacklisting the Chinese tech giant Huawei in
US market. The paper aims to discuss the tentative alternative consequences of banning Huawei in US market. As a very recent
incident, there is no literature available on this topic. The paper has used the published sources and attempt to predict the
consequences of this decision. The author expects that this paper will be helpful in conducting further study in the areas of
international trade and political economy.
Keywords: huawei, us, china, ban, mobile set, consequences
1. Introduction
Amid tension of trade dispute between the US and China, the
US President Donald Trump signed an executive order to
blacklist Huawei in the US market. It means that the US
suppliers, partners and buyers of Huawei products and
technologies need to take permission from the US Trade
Department in order to conduct business with Huawei.
Furthermore, Google would no longer allow Huawei's smart
phones to use popular smart phone applications like Gmail
and Google Maps. Google was not the only company that had
cut ties with Huawei. American chipmakers such as Intel,
Qualcomm and Broadcom told their employees that they
would stop supplying Huawei (Bloomberg, 2019) [2]. In
addition, German chipmaker Infineon had also stopped
shipments to Huawei (Nikkei Asian Review, 2019) [11].
The Trump administration last week announced restrictions
that seemed aimed at Huawei. An executive order signed by
the president declared a "national emergency" and blocked US
companies from doing business with foreign tech companies
that pose "an unacceptable risk to the national security of the
United States." The Commerce Department said it would add
Huawei and its subsidiaries to a list of companies generally
prohibited from buying US technology. Trump's crack down
on Huawei, which has the support of the Chinese government,
comes amid escalating trade tensions with the country and
growing concerns that the Chinese government could
potentially use Huawei devices to spy on the US and its allies.
According to the Commerce officials in the US, Huawei was
added to the blacklist after concluding that the company was
engaged in activities "contrary to the US national security or
foreign policy interests." Huawei officials have denied those
claims.
After the Trump administration last week barred American
companies from doing business with Huawei, the world's
second-largest supplier of smart phones, shares of Google and
other technology companies dropped on Wall Street.
However, just a day after blacklisting Chinese technology firm
Huawei from buying American-made products, the Trump
administration is now easing up. On Monday, 20 May, 2019,
the US Commerce Department restored the Shenzhen-based
tech giant's ability to maintain its network, which means the
company can buy equipment and complete software updates
to support those who use Huawei smart phones, according to
a 90-day temporary general license issued by federal officials
(www.cnet.com).
2. Response from Huawei
Huawei made an immediate response after the ban. The
founder Ren Zhengei told Chinese state media that a clash
with the US was inevitable, and that it was only a matter of
time before Huawei threatened US interests. He said that the
individuals and families sacrificed a lot for the sake of an
ideal, to stand at the world and the conflict with the US was
inevitable sooner or later (South China Morning Post, 2019)
[13]. Ren said the 90-day reprieve from the US government
meant little, because the company was prepared for the
possibility that it might lose access to American companies.
He further stated that the current practice of US politicians
underestimates their (Huawei) strength (BBC, 2019) [1].
In March 2019, Richard Yu, CEO of Huawei's consumer
products division, told a German newspaper that Huawei had
prepared its own operating system in case it lost access to
Android. He branded it as “Plan B". However, he told that the
company still prefers to work with the ecosystems of Google
and Microsoft. The company has stockpiled enough chips to
keep its phone business running for months (Bloomberg,
2019) [2].
Although, Huawei is a private company enlisted in Shenzhen,
China, it has close interaction with the Chinese central
government. Moreover, it is the largest mobile manufacturer
in China employing thousands of staffs not only in China
itself, but also around the globe where it is being operated.
Therefore, it can be logically believed that the Chinese
government will also take some counter measures against this
ban that will be discussed at the following sections of the
paper.
International Journal of Commerce and Economics
23
3. The story behind Huawei ban
3.1 Huawei, 5G and the security debate in the west
The acceleration of the national security dispute around
Huawei has caught a number of 5G enthusiasts off guard. The
United States, Australia, New Zealand, Japan, Germany and
the Czech Republic, among the nations that have imposed
restrictions on the use of Huawei 5G solutions over national
security concerns and the many European countries are
thinking whether to follow such decision. To Sum up, such
worries are rooted in the ties between Chinese
communications technology companies and its intelligence
services, reinforced by China’s political and legal
environment requiring cooperation with intelligence agencies.
Perceived or real, fears persist that adopting Huawei, 5G
technology will introduce a significant dependence on
equipment that can potentially be controlled by the Chinese
intelligence services and the military in peacetime and in
crisis.
Chinese technology companies have become significant
players in the global market because of their clinch of
innovation and the notable improvement in quality and
affordable cost of their products. However, the legal and
political influence of the Chinese state over its technology
industry and ties between the government and the companies
leave the Western countries uneasy. China has made no secret
of its adversarial perception of the west and has been actively
seeking a stronger global influence. As already noted on the
precious section, the US administration and officials always
doubted Huawei for spying through the electronic devices that
it deals in.
3.2 Is it just Huawei
While Huawei stands in the limelight due to its advanced 5G
capacity, the issue is not just about Huawei. Many states are
likewise concerned about other Chinese communications and
video surveillance technology manufacturers, primarily ZTE,
but also Hytera Communications Corporation, Hangzhou
Hikvision, and Dahua Technology, all of whose technology
has been banned from use in government networks under US
law (Kaska et al., 2019) [8].
3.3 Is really a security concern or a political economic
decision
The rise of Huawei is an example of the Chinese national
policy of technological superiority: the past few years have
seen the company grow into the largest telecoms equipment
manufacturer in the world. In 2018, it passed Apple as the
second largest producer of smart phones after Samsung (The
Guardian, 2018) [15]. It is currently the only company that can
produce at scale and cost of all the elements of a 5G network,
whereas its nearby competitors Nokia and Ericsson not yet
able to offer a viable alternative (CKGSB, 2019) [4]. Huawei’s
ambition is to dominate the market for 5G wireless
communications (Frank & Sharon, 2018) [6] and has
established cooperation with telecommunications companies
in a number of countries in Europe and worldwide.
Huawei and other Chinese telecommunications companies
have obtained a visible and active role in the development of
global 5G standards and have acquired a significant
proportion of core patents for 5G. China currently holds an
estimated 10% of the ‘5G-essential’ industrial property rights
in radio access solutions where Huawei has the most patents,
followed by ZTE. Chinese influence in the global standards
organizations (ITU, 3G Partnership Project) has also grown in
terms of the key positions held by Chinese representatives
(Sharma, 2018) [12].
The growth of the global market power of Chinese technology
companies is largely a product of focused government
industrial policy and accompanying funding instruments (Lee,
2018) [9]. Similar to its technological advantage, Huawei’s
affordable pricing is more likely an outcome of China’s
domestic policy than its fundamental technological superiority
over competitors (MOFCOM, 2018) [10]. Preferential treatment
of domestic providers means that the latter control 75 percent
of the Chinese market, giving them unbeatable economies of
scale (MOFCOM, 2018) [10].
However, there is a debate on the both sides (the US and
Chinese) whether the decision is related to the US national
security or more like to prevent the Chinese domination in
world technology market. The logics behind such debate
particularly from the Chinese counterpart are twofold. For
instance, the decision was made amid the trade tension
between the two countries when two countries are blaming
each other for not concluding a unified trade agreement. In
fact, there was no unified agreement has reached between the
two giant economies. The last meeting the delegates sat was
on May 10, 2019 without reaching a decision. President
Trump accused China to overrule the agreement and
immediately after two weeks he made this ban decision.
Secondly, according to Huawei and the Chinese counterpart,
this decision has been made to keep the Chinese tech giant out
of the US market which is rapidly growing even in the US
because of its competitive price advantage.
Therefore, it is difficult to comment on the motive of such
decision but it would obviously have some counter effects
which will be discussed on later sections.
4. The tentative consequences
The paper proposes that there will be alternative consequences
if this ban on Huawei persists for long. The after effects will
not be very enjoyable both for the US firms and the general
mobile phone set users all over the world. The tentative after
affects with the alternative have been discussed below:
4.1 Alternative-1: The ban will be relaxed or lifted
If the Huawei ban decision has been made not genuinely on
security issue but as a trade game to push China, there is an
obvious chance to lift such ban or at least to relax it. The logic
for such argument is that as a result of this ban, The Chinese
government will be encouraged to ban all the western
technological companies in China such as iPhone, Lenovo,
Dell, HP etc. (Already Google is forbidden in China). This
will severely affect the sales and revenues of those firms as
China is one of the biggest consumer markets for tech
products. In fact, the response is already becoming to be
expressed in Chinese media (Techthelead, 2019) [14]. As it is
very logical, there are counter actions for all the actions taken
which is particularly true in bilateral trade. The result will be
the pressure on the Trump administration to ease or
completely lift the ban on Huawei.
International Journal of Commerce and Economics
24
4.2 Alternative-2: The ban will continue
If however, the ban on Huawei will continue for a long time,
there would different consequences. Huawei will be
encouraged to develop its own operating system and use it on
their mobile phone sets. The company has price advantage and
already a large consumer base. In the beginning, the company
will face some challenges as the consumers prefer the Google
operating systems to be installed on the phone set. This will
slow down their sales a bit for the time being. But slowly the
consumers will be used to with the new operating system and
the company can regain its market. Another effect will be
retaliative actions taken by the Chinese government as a
response to Huawei ban making the US firms suffer a lot in
the long term. Furthermore, such ban will reignite the present
trade conflict between the US and China (Hosain & Hossain,
2019) [7].
5. The effects on consumers
As already noted, Huawei has a large customer base in Asia,
Africa and some European countries. Those who cannot use
expensive mobile sets like iPhone or Samsung are the main
customers of the cheap mobile sets like Huawei. Those
customers, at least initially will not prefer to use Huawei sets
without Google operating systems add on. But there are a lot
of Chinese customers in Asia Pacific region who would
continue to use the set as they know Mandarin. But Huawei
can slowly develop their own operating software and may
translate it into English that would attract the normal, lower
end customers. Huawei CEO Fen has already declared that
they are ready to challenge and they want to be the supreme in
technology market which is now mostly dominated by the US
(South China Morning Post, 2019) [13]. The net effect will be a
serious collision with the US market share in Asia and Africa
where most of the consumers live particularly in South and
East Asia.
6. Implications of the study
The paper is the first one to be published regarding this
incident. It is expected to pour some technical and theoretical
lights on the bottom lines of such decision. It is expected
further to open new avenues for conducting some in depth
research in this fairly new phenomenon.
7. Limitations and further scope
The study is limited to theoretical phase on the basis of
published news and a few articles published. The author
expects that further studies will be conducted on this based on
data and some more facts.
8. Conclusion
As the first paper on this very recent incident, the author has
tried to discuss the alternative consequences of this sudden
decision. One thing for sure is that Huawei ban in the US will
not bring any positive impact for both parties and for the
general consumers of mobile sets although it will certainly
take some time to see the real impact and further results. But it
will not bring any blessings if the two counterparts and
world’s largest and second largest economies (US and China)
engage in trade wars and nasty blaming to each other.
Therefore, it would be wise to solve the problem by not
blaming each other, rather discussing it in a cooperative and
sacrificing manner.
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