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Why China Will Not Save Huawei From Trump’s Devastating New Blow - Forbes

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There’s a surprise twist in the aftermath of Trump’s ramp-up of his sanctions against Huawei—China’s relative silence. A week on from the U.S. administration issuing what some analysts have described as a “death sentence,” Huawei is fast realizing that China is not about to fire a silver bullet to turn this situation around.

China denounced Trump’s latest attack as “stark bullying” and “shameful,” with a government spokesperson telling the media that “the Chinese government will continue to take necessary measures to safeguard Chinese companies' legitimate rights and interests.” But there were no bombastic threats or retaliation against U.S. firms operating in China. The comments were notably muted.

Perhaps Beijing is waiting for November’s election, hoping (likely naively) that a change in U.S. leadership will sharply reverse policy, fearing that an unpredictable president eyeing his electorate might announce further ad hoc measures. The more Trump paints Biden as China’s friend, the more unlikely this becomes. It’s actually more that the U.S. has successfully called China’s bluff this time around, with huge ramifications for the global tech sector and spelling potential disaster for Huawei.

If you believe the U.S. has been on a mission “to kill Huawei,” as some reports have put it, for fifteen-plus years, then the question is why it didn’t think of this latest move sooner. A year on from restricting Huawei’s access to U.S. components, the Trump administration upped the stakes in May, prohibiting Huawei from using custom chipsets designed or manufactured with the help of U.S. tech. Huawei admitted this would seriously damage the company and reached for Plan B—reverting to the standard chipsets others could buy as well.

And then came America’s deathblow—Huawei would be prohibited from those standard chipsets as well. In effect, the company would not be allowed to buy any of the silicon required to power its consumer devices, cloud servers and 5G network equipment. Any supplier would need a license to sell to Huawei or risk sanctions of their own, no industry player—even in China—will take that risk. MediaTek—which had been set for a huge boost in sales to Huawei—has applied for a license to continue those supplies. Others will follow suit. Should the U.S. grant those licenses, though, it will raise a fundamental question as to what was the point of this latest action.

So—again, given how effective this last move has been, why didn’t the U.S. go there before? Perhaps it needed to test the envelope of Beijing’s resistance. A year ago, after the initial sanctions, China threatened to reciprocate against U.S. companies—but nothing has been done. Alternatively, maybe Washington was genuinely caught by surprise at how Huawei has managed to thrive under the blacklist.

Here’s another theory. China is the ultimate long-game pragmatist. It’s fairly obvious that it can’t win the short-term battle over Huawei—not the way the U.S. is playing its hand. Trump has risked repercussions against U.S. companies selling into or manufacturing in China, he’s upped the stakes, blacklisting dozens of other Chinese companies, and now he’s taken on social media giants WeChat and TikTok.

Trump’s calculation is a fairly simple: Who needs who more? And Beijing has calculated the same—China’s government said as much in its state-controlled media, in the aftermath of Trump’s initial threat to ban TikTok. “Washington is well aware,” the China Daily opined, “that Beijing will be cautious about retaliating like-for-like as it values foreign investment in China, and the sizeable U.S. investment in China is of more importance to the Chinese economy than the much smaller and shrinking Chinese investment is to the U.S. economy.”

That message was specifically around the forced sale of TikTok’s U.S. entity, now seemingly nearing its endgame. But it was also an interesting public insight into Beijing’s mindset. Huawei watchers (and one can assume Huawei itself) are surprised that Beijing has not done more given the materiality of the latest attack. Perhaps the message from Beijing it more expansive than it seemed.

Huawei is a strategic asset to Beijing in the way that TikTok is not. But breaking that down, and if you put aside U.S. allegations of state-sponsored espionage on Huawei’s part, Beijing needs Huawei to build out its own 5G infrastructure along with the likes of ZTE, to further investments in AI and autonomous machines, to continue a game of R&D catchup with the west.

Beijing is less concerned with the sale of snazzy smartphones that compete with Samsung Galaxy and Apple iPhone devices. Huawei has reportedly stockpiled more of the chipsets it can use in network kit than those for its premium smartphones. And, beyond that, the reality is that China’s race to de-Americanize its silicon supply chain will replace the chipsets in 5G base stations long before it matches the tech in Apple and Samsung smartphones. Bad for Huawei’s bottom-line, maybe, but better for Beijing.

We still await Huawei’s perspective—there's a media vacuum right now, with plenty of speculation but no counter view from Shenzhen. As the South China Morning Post put it, “with the latest move by Washington to tighten its grip over Huawei's access to U.S. core tech... the company is literally facing a life or death situation... so far Beijing has not retaliated with anything other than fiery rhetoric.”

Playing the long game, China clearly sees itself building up a domestic silicon industrial base which is not reliant on U.S. tech. But, even if that’s possible, it will take years. Huawei will not survive in its current form until then, not unless there is some easing of sanctions, some respite. Either that or it will need to change its form, its focus. There’s no equivalent of a TikTok sale to solve this problem.

Underneath it all, there’s a dark irony to China’s lack of action right now. As the SCMP points out, “the fact that the Chinese government is not helping in the company’s fight with the U.S. must be a bitter pill for Huawei, which got into trouble with Washington in the first place because of its perceived ties to Beijing, an allegation it has always denied.”

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Why China Will Not Save Huawei From Trump’s Devastating New Blow - Forbes
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