Huawei ban clouds US-China trade talks, tech sector

Huawei ban clouds US-China trade talks, tech sector

China on Thursday slammed a decision by the U.S. government to put telecom giant Huawei on a blacklist and said it will take steps to protect its companies, in a further test of ties as the superpowers clash over trade.

Man using his mobile phone walks past a yet-to-open Huawei store inside a shopping mall in Shanghai
A man using his mobile phone walks past a yet-to-open Huawei store inside a shopping mall in Shanghai, China May 16, 2019. REUTERS/Aly Song

WASHINGTON/BEIJING: A U.S. bid to block China's Huawei Technologies from buying vital American technology threw into question prospects for sales at some of the largest tech companies and drew a sharp rebuke from Beijing, which said the move could hurt trade talks.

Shares of Huawei's U.S. suppliers fell on fears the Chinese firm would be forced to stop buying American chips, software and other components after the Trump administration banned it from buying U.S. technology without special approval.

Huawei, the world's biggest telecoms equipment maker, said that losing access to U.S. suppliers "will do significant economic harm to the American companies" and affect "tens of thousands of American jobs."

"Huawei will seek remedies immediately and find a resolution to this matter," the company said in a statement.

The U.S. crackdown, announced on Wednesday, was the latest shot fired in a U.S.-China trade war that is rattling financial markets and threatening to derail a slowing global economy.

Chinese officials said Washington's aggressive posture could affect negotiations, which appeared to hit an impasse in the past week as the United States hiked tariffs on Chinese goods and Beijing retaliated with higher duties on U.S. products.

Commerce Ministry spokesman Gao Feng said the United States should avoid further damaging relations between the world's two largest economies. "China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms," Gao told reporters.

China's Foreign Ministry also announced the formal arrest of two Canadian citizens who were detained shortly after Canada arrested Huawei Chief Financial Officer Meng Wanzhou in December.

Meng faces extradition to the United States on charges that she conspired to defraud global banks about Huawei's relationship with a company operating in Iran. She and the company deny the charges.

While Canada says China has made no specific link between the detentions of the two men and Meng's arrest, experts and former diplomats say they have no doubt it is using their cases to pressure Canada.

ECONOMIC FALLOUT

The U.S. Commerce Department said on Wednesday it was adding Huawei and 70 affiliates to its "Entity List," which bars them from buying components and technology from U.S. firms without government approval.

It later revised the number of affiliates down to 68. The order could go into effect this week.

Lawmakers in the U.S. Congress have long feared that Huawei's equipment could be used by the Chinese government to spy on Americans. Democrats and Republicans lined up in support of the Trump administration's move.

Republican Senator Marco Rubio said firms should reconsider entering into long-term contracts with Huawei, noting in a tweet that "very soon Huawei will lose access to important components like chips, antennae & phone operating systems."

Leading analysts downgraded their assessments for several microchip companies following the move against Huawei.

Huawei was the world's third largest purchaser of semiconductors last year, accounting for 4.4per cent of global market share, behind only Samsung Electronics Co Ltd and Apple Inc, according to Gartner, a research firm.

Susquehanna Financial Group analyst Christopher Rolland, who said he believed Huawei had built up a one-to-two-year supply of U.S. components, cut price targets on several microchip companies, including Xilinx Inc. Shares of Xilinx were down 5.7 percent in mid-afternoon on Thursday, while those of rival chipmaker Qualcomm Inc fell 3.9 percent.

There are also growing signs the U.S.-China trade war could filter into the broader economy.

Walmart Inc said prices for shoppers would rise because of higher tariffs on Chinese goods even as the world's largest retailer reported on Thursday its best comparable sales growth for the first quarter in nine years.

Walmart Chief Financial Officer Brett Biggs told Reuters the company would seek to ease the pain, in part by trying to buy from different countries.

TARIFFS

As negotiations toward resolving the trade war stalled last week, the United States ramped up the pressure by raising tariffs on a list of US$200 billion worth of Chinese imports to 25per cent from 10per cent.

China, which views the U.S. decision last year to impose tariffs as the genesis of the trade war, retaliated this week with higher duties on a revised list of US$60 billion worth of U.S. products.

President Donald Trump, who has embraced protectionism and accused China of engaging in unfair trade practices, has threatened to put 25per cent tariffs on a further US$300 billion worth of Chinese goods.

With few options left for levying tariffs on U.S. goods, China could opt for other ways to pressure the United States, including blocking corporate mergers and other deals.

"There's other things they can do, and M&A would certainly be one thing," said Stacy Rasgon, an analyst with Bernstein.  

While the United States wants significant changes in China's approach to intellectual property rights and state subsidies as part of any trade deal, Beijing is insisting that all tariffs be eliminated.

The two sides are also at odds over how much more in U.S. goods China would have to agree to buy as well as how balanced the text of the draft trade agreement should be, Vice Premier Liu He, China's lead trade negotiator, said last week.

In the week ended May 9, Chinese buyers dropped orders for 3,247 metric tonnes of U.S. pork - the biggest cancellation in more than a year and a blow to an industry that has been banking on China increasing purchases because of African swine fever.

(Reporting by Yawen Chen and Se Young Lee and Diane Bartz; Additional reporting by David Shepardson in Washington, Stephen Nellis and Noel Randewich in San Francisco and Arjun Panchadar in Bengaluru; Writing by Chris Sanders and Paul Simao; Editing by Sonya Hepinstall and Peter Cooney)

Source: Reuters

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