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After a puzzling on-again, off-again trade action against China’s information and communications technology (ICT) giant ZTE in 2018, the Trump Administration began sanctioning China’s number #1 ICT player Huawei in May 2019.  The sanctioning action involved putting Huawei on a Commerce Department “entity list” and thereby restricting U.S. suppliers from selling their goods and technology to Huawei.

As with all of Trump’s trade actions against China, impulse outweighed well thought-out execution in the Huawei crackdown.  Initially, some sales were allowed and others denied without clear criteria being communicated to U.S. industry.  Later, without preparatory signaling, the Huawei campaign was intensified by expanding U.S. government authority to require licenses for sales of semiconductors made abroad with American technology.

The fitfulness of this policy can be measured by (1) the number of licenses (and dollar value of affected goods and technology) pending but held up in the inter-agency process and (2) the number of licenses (and dollar value of affected goods and technology) which had been applied for by U.S. companies but not processed towards the end of the Trump Administration.  (As things stood at the time of the November 3rd election, the expectation was that products in both categories which had clear 5G application would likely be rejected while non-5G products would likely be processed on case-by-case basis.)

Meanwhile, in the international sphere, the Trump Administration pursued a parallel campaign to try to persuade traditional allies to disallow Huawei technology from 5G infrastructural build-out in their respective markets on the grounds that – despite price and performance competitiveness — Huawei’s products represent a national security threat.  The results of this international campaign were mixed at best, not least because many of these traditional allies had themselves been targets of different tariff sanctions under Trump’s America First trade policy.  Without delving into the changing fortunes of this campaign at different times in different parts of the world, a summary headline on November 3rd might have read “Trump’s 5G Campaign Against Huawei: Embraced in India, Accommodated in the UK, Begrudged in Germany and Repudiated in Thailand and Elsewhere.”

The Biden Administration, while making a quick and clean break from Trump Administration trade policy in the area of climate change mitigation and clean energy technology, has largely kept the Trump Administration domestic policy of restrictive licensing for sales of advanced ICT goods in place.  At least, it has made clear that no substantive change should be expected until after the completion of a whole-of-government review of China trade policy and a parallel review of strategic global supply chains which includes semiconductors. In the international arena, it has relaxed the narrowly-focused pressure campaign against Huawei adoption in favor of a more broadly-conceived alliance strategy to rally traditional allies and other democracies to rise to the 21st century challenge posed by China’s autocratic model.

So where do things stand today?  The restriction of supplies of U.S. advanced semiconductors to Huawei under both the Trump and Biden Administrations has taken the biggest toll on Huawei.  Less impactful but still a headwind for Huawei has been the doubt sown internationally as the U.S. and China edge closer towards global confrontation and supply chain de-coupling.  The result?  Huawei reported last Friday its third straight quarterly decline in revenues, falling a significant 38% against 2021Q1 results.

Huawei is likely to remain at the center of a highly-fraught tug-of-war between the U.S. and China over 5G.  On one side, China has ability to leverage the world’s largest installed base of advanced mobile phone users in the world.  On the other, the U.S. dominates the global market for the advanced microchip designs on which advanced telecom markets depend. And the U.S. maintains close partnerships with the world’s leading microchip fabricators in Taiwan and the makers of the world’s leading fabrication equipment in the Netherlands and elsewhere.

Expect more tremors and seismic activity on this fault-line for the foreseeable future.  Just last week, the PRC government issued retaliatory actions against Huawei’s main Western rivals – Sweden’s Ericsson AB and Finland’s Nokia, among others.  And, as fall-out from the recent spread of the SARS-COV-2 Delta-variant in China, it was announced over the weekend that the World 5G Conference – scheduled for August 6-8 in Beijing – would be postponed indefinitely.  Pressure continues to mount while chances to release that pent-up pressure close off.

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