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Home»Finance»Can Huawei Defy Geopolitical Gravity This Time?
Finance

Can Huawei Defy Geopolitical Gravity This Time?

February 15, 2023No Comments6 Mins Read
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Can Huawei Defy Geopolitical Gravity This Time?
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The Biden administration is reportedly considering cutting off Huawei from all U.S. suppliers, including Qualcomm and Intel, according to Reuters. The unnamed sources quoted in the Reuters report revealed that the administration is working on a new policy, aiming at denying Huawei access to technology below 5G level, including items related to 4G, cloud items, WiFi 6 and 7, high-performance computing, and artificial intelligence (AI).

This is not the first time Huawei, a Chinese telecommunications giant, has been targeted by Washington. In 2019, the behemoth was crippled after being placed on the Department of Commerce entity list. The listing restricted most U.S. companies from supplying Huawei with goods and technology unless they were granted licenses. The U.S. Commerce Department later granted export licenses to suppliers like Intel and Qualcomm to provide technologies and items below the 5G level, but Huawei was cut off from Qualcomm’s 5G chips and Intel’s x86 chips.

The ban took a toll on Huawei – the erstwhile 5G smartphone spearhead was forced to drop 5G for its new P50 phones. It also lost access to Google’s Mobile Service. Huawei’s year-over-year phone sales declined 41.1 percent in the fourth quarter of 2020. By the end of 2020, Huawei sold Honor, its smartphone division, to Digital China and a local government.

Now, the Biden White House is considering fully cutting off Huawei from items below the 5G level, a harsh move that, if it occurs, would once again weigh heavily on the tech giant.

Qualcomm’s 4G chips are considered a choke-point technology for Huawei. Huawei relies on Qualcomm’s processors and modems to make 4G smartphones. It is also dependent on Intel and AMD for processors to make laptops, and needs U.S. chips to build Macrocell base stations. The ban, however, would be less consequential for the U.S. suppliers than the last time. Most of the U.S. firms will suffer a moderate revenue loss, considering Huawei now represents less than 1 percent of revenue for companies like Intel.

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Several reasons account for the potential cut-off. Huawei is now a different company with different priorities compared to four years ago, reckons Martijn Fasser, a technology expert at CNAS and a former CIA official. To offset U.S. sanctions, Huawei has shifted its focus to business lines less dependent on chips. It now provides tech support and services for various industries, including auto-driving and agribusiness. Huawei’s expansion into the cloud computing industry has turned out to be a success. Its government connections help it win contracts, making it the second-largest cloud provider in China in merely a few years.

CSIS’s Reconnecting Asia project recently released a report detailing Huawei’s strategic shift to cloud infrastructure and e-government services. By exporting its technologies into the center of local government operations, Huawei secured market access to developing economies, whose role in global networks continues to grow. Huawei’s cloud revenue increased by 168 percent in 2020. By 2021, 70 cloud infrastructure and e-government service deals between Huawei and foreign governments (or state-owned enterprises) in 41 countries were identified.

The company also packages delivery of hard infrastructure with services, while harnessing financing from Chinese policy banks. Jonathan Hillman and Maesea McCalpin, the authors of the CSIS report, are alert to Huawei’s transition from a hardware provider to a service one, urging the United States to maintain its advantage and keep up. Nate Fick, U.S. ambassador at large for cyberspace and digital policy, confirmed this view: “We have to look beyond just wireless connectivity. The next frontier of Huawei competition is probably in the data center.”

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In certain regions, Huawei’s expansion has prompted U.S. suspicion. Last December, during a visit by Chinese President Xi Jinping, Saudi Arabia and Huawei signed a memorandum of understanding on cloud computing and high-tech complex building. Washington may feel bitter about the deal, especially since its relations with Saudi Arabia soured after Biden took office.

In a report that seeks to guide Washington in winning its 5G competition with Beijing, the Rand Corporation warns about Huawei’s own mobile operating system, contending that once adopted by consumers, it may render the blacklisting effort ineffective and threaten Google’s advertising business model.

Huawei did struggle to survive the initial export controls, but with sound strategies and solid government support, it appears to be bouncing back, adapting to the new circumstances with alternative business priorities. In the first nine months of 2022, the decline in Huawei’s revenue from its devices business slowed. On December 30, Huawei estimated its 2022 revenue remained flat, indicating the sales decline caused by U.S. sanctions has halted.

“U.S restrictions are now our new normal,” said Eric Xu, the rotating chairman of Huawei. “We are back to business as usual.” Previous sanctions are becoming less effective. Meanwhile, Huawei’s leverage in the developing world is expanding. This explains why Biden may choose to act to further restrict the company’s options.

The tragic nature of China-U.S. relations at this point is well captured by another motive for the move – that Biden feels pressured to look tougher on Huawei by the Republicans, who now control the House of Representatives and are, in general, in favor of a “zero-sum” China strategy.

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Last month, under the leadership of Michael McCaul, the House Foreign Affairs Committee issued a statement mentioning Huawei. The committee “was shocked” to find out the Department of Commerce had approved $60 billion worth of license applications to Huawei over six months in 2020 and 2021, the statement said. It urged the Department to permanently halt exports of critical technology to Huawei. Biden may feel compelled to act tough in the current political climate.

Compared to Donald Trump’s muddled decoupling, which aggravated tensions with little strategic gains in return, Joe Biden understands how to minimize the cost of decoupling for the United States. He competes asymmetrically, striking where China is most vulnerable with the help of allies. The administration hit China with rounds of export control measures, ones that will severely damage China’s ability to produce advanced semiconductors, while successfully getting the Netherlands and Japan on board.

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Agathe Demarais, the global forecasting director at the Economist Intelligence Unit, sees U.S. dominance over the microchip sector as a massive trump card when it comes to impairing China’s capability to develop certain cutting-edge technologies. Each year China imports $300 billion worth of semiconductors; meanwhile the entire upstream echelons of the semiconductor supply chain are controlled by a few U.S. firms.

These restrictive measures aimed at containing the technology threats posed by China, including the coming policies targeting Huawei, signal a shift in Biden’s China strategy. This new approach is more zero-sum, more aggressive, and more susceptible to the country’s volatile domestic politics. Given the United States’ unparalleled leverage, the sanctions it imposes on Chinese tech firms will be extremely damaging.

Defy Geopolitical Gravity Huawei Time
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