US blacklists China’s Huawei and bars US companies from using foreign telecoms posing security risk

Washington believes equipment made by Huawei could be used by the Chinese state to spy. PHOTO: REUTERS

WASHINGTON (REUTERS) - The Trump administration hit Chinese telecoms giant Huawei with severe sanctions on Wednesday (May 15), adding a new incendiary element to the United States-China trade dispute just as Treasury Secretary Steven Mnuchin said he would visit China soon for more talks.

The Commerce Department said it was adding Huawei Technologies and 70 affiliates to its so-called "Entity List" - a move that bans the company from acquiring components and technology from US firms without government approval.

Secretary Wilbur Ross said in a statement that President Donald Trump backed the decision to "prevent American technology from being used by foreign-owned entities in ways that potentially undermine US national security or foreign policy interests".

Mr Trump earlier in the day signed an executive order barring US companies from using telecommunications equipment made by firms deemed to pose a national security risk.

While the order did not specifically name any country or company, US officials have previously labelled Huawei a "threat" and actively lobbied allies not to use Huawei network equipment in next-generation 5G networks.

China said on Thursday (May 16) said it strongly opposed other countries imposing unilateral sanctions on Chinese entities.

The United States should avoid further impacting Sino-US trade relations, Commerce Ministry spokesman Gao Feng told reporters at a weekly briefing. He also said China would take "relevant countermeasures" to protect the rights and interests of Chinese firms abroad. He did not elaborate.

Huawei on Thursday criticised what it said were "unreasonable restrictions" by the United States.

"Restricting Huawei from doing business in the US will not make the US more secure or stronger; instead, this will only serve to limit the US to inferior yet more expensive alternatives," the telecom giant said in a statement.

"In addition, unreasonable restrictions will infringe upon Huawei's rights and raise other serious legal issues," the statement said.

The company said it was "ready and willing to engage with the US government and come up with effective measures to ensure product security".

Last August, Mr Trump signed a Bill that barred the US government itself from using equipment from Huawei and another Chinese provider, ZTE Corp.

Federal Communications Commission (FCC) chairman Ajit Pai, who has called Huawei a threat to US security, said on Wednesday that, "given the threats presented by certain foreign companies' equipment and services, this is a significant step towards securing America's networks".

The order directs the director of US National Intelligence to produce an assessment by late June on the risks to the US and critical infrastructure "from information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary".

In January, US prosecutors charged two Huawei units in Washington state, saying they conspired to steal T-Mobile US Inc trade secrets, and also charged Huawei and its chief financial officer with bank and wire fraud on allegations that the company violated sanctions against Iran.

The FCC in April 2018 voted to advance a proposal to bar the use of a US$9 billion (S$12.3 billion) government fund to purchase equipment or services from companies that pose a security threat to US communications networks.

The FCC voted unanimously to deny China Mobile's bid to provide US telecommunications services last week, and said it was reviewing similar prior approvals held by China Unicom and China Telecom Corp.

The issue has taken on new urgency as US wireless carriers roll out 5G networks.

While the big wireless companies have already cut ties with Huawei, small rural carriers continue to rely on both Huawei and ZTE switches and other equipment because they tend to be cheaper.

Trade talks

Speaking in a US Senate Appropriations subcommittee hearing earlier, Mr Mnuchin characterised two days of high-level talks with Chinese officials in Washington last week as constructive.

"My expectation is that we will go to Beijing at some point in the near future to continue those discussions," he said. "There's still a lot of work to do."

He did not say when his China trip might take place.

The Trump administration's rhetoric towards China had cooled in recent days after another round of tit-for-tat tariffs between the world's two largest economies and a sell-off on global stock markets.

On Tuesday, Mr Trump denied talks with China had collapsed, and sounded an optimistic note about the chance of a deal, saying he had an "extraordinary" relationship with Chinese President Xi Jinping, who he plans to meet at a Group of 20 summit in Japan next month.

Mr Trump also urged China to buy more US farm products. US agricultural goods have been targeted by China's retaliatory tariffs, and American farmers, a key political constituency for Mr Trump, are worried.

The US Department of Agriculture has paid US$8.52 billion directly to farmers as part of a 2018 aid programme designed to offset losses from tariffs imposed by China and other trading partners, a spokesman for the agency said on Wednesday.

The Trump administration had pledged up to US$12 billion in aid to help offset losses resulting from Chinese tariffs.

Tariff pain

Mr Trump, who has embraced protectionism as part of an "America First" agenda, has railed against what many US and European officials and companies describe as China's unfair trade practices, including forced technology transfers and intellectual property theft.

But trading partners and close allies in Europe, North America and Asia are also in the US administration's sights. Mr Mnuchin said the US was close to resolving a dispute over steel and aluminium tariffs imposed on Canada and Mexico last year as the three countries renegotiated the North American Free Trade Agreement (Nafta).

US Trade Representative Robert Lighthizer met Canadian Foreign Minister Chrystia Freeland in Washington on Wednesday to discuss the tariffs and other issues related to the US-Mexico Canada Agreement (USMCA) which replaced Nafta.

The three countries have not yet ratified the new deal. After her meeting with Mr Lighthizer, Ms Freeland declined to say whether the two countries were close to a deal. But she told reporters later that ratification of the agreement would be difficult as long as the tariffs remain in place.

"When it comes to Canada, it has still been the case for us that as long as the tariffs remain in place, ratification would be very, very problematic," Ms Freeland said on Capitol Hill.

Three Trump administration officials told Reuters that Mr Trump was expected to delay a decision on imposing tariffs on imported cars and parts by up to six months, avoiding opening yet another front in his global trade battles.

The tariffs of up to 25 per cent on cars and parts could have a devastating impact on Japan and countries in the European Union, particularly Germany.

Global stock markets, which have swooned in the past week over the rising trade tensions, gained on Wednesday after reports of the planned delay.

'Adverse consequences'

As negotiations towards resolving the US-China dispute stalled last week, the US ratcheted up the pressure by increasing tariffs on a list of US$200 billion worth of Chinese imports to 25 per cent from 10 per cent.

China retaliated on Monday with higher tariffs on a revised list of $60 billion worth of US products. Mr Trump could launch 25 per cent tariffs on another US$300 billion worth of Chinese goods when he meets Mr Xi next month.

He has not ruled out imposing punitive levies on all of China's imports to the US. Another escalation could disrupt global supply lines and damage a slowing world economy.

Beijing is vowing not to succumb to US pressure. But on Wednesday, China reported surprisingly weaker growth in its retail sales and industrial output in April.

Data out of the US, meanwhile, showed retail sales falling in April as households cut back on purchases of motor vehicles and other goods, pointing to a slowdown in economic growth after a boost from exports and inventories in the first quarter. Other data showed a drop in US industrial production.

The US Congress is uneasy about the potential consequences of tariffs on the economy. House Majority Leader Steny Hoyer said American consumers were in the "same boat as farmers" and would end up having to bear the burden of the tariffs. Consumer spending accounts for more than two-thirds of US economic activity.

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