US-China trade war

Trump held off on blacklisting Huawei until talks failed

A staff member is seen inside a Huawei retail store in Shanghai on May 8, 2019.
A staff member is seen inside a Huawei retail store in Shanghai on May 8, 2019.PHOTO: REUTERS

WASHINGTON • The Trump administration held off blacklisting Hua-wei Technologies out of concern that the move could disrupt trade negotiations with China, and took action only after the last round of talks hit an impasse, according to people familiar with the matter.

Plans to target the Chinese telecommunications equipment-maker over security concerns had been on the table for months and included possibly subjecting Huawei to economic sanctions, according to the sources, who asked not to be identified as they were discussing internal deliberations.

However, the decision to curtail the Shenzhen-based company's access to American suppliers unfolded quickly once trade talks broke down, setting off a scramble to implement the measures, the people said.

The US Commerce Department's action last week requires American suppliers of Huawei, a crown jewel of Chinese manufacturing, to seek US government permission to do business with the company.

The decision touched off a massive disruption in technology supply chains, hitting some of the biggest component-makers as Intel, Qualcomm and Broadcom told their employees that they would not provide products to Huawei until further notice.

The timing of the US action raised questions about whether President Donald Trump was punishing the company in part to gain a negotiating edge with Beijing in a deepening clash over trade.

Talks between Beijing and Washington deadlocked this month as Mr Trump accused China of backing out of a deal that was taking shape with US officials, saying China reneged on an agreement to enshrine a wide range of reforms in law.

Mr Trump increased levies on US$200 billion (S$276 billion) worth of Chinese imports to 25 per cent from 10 per cent, prompting retaliation from Beijing.

The US has said it is prepared to hit China with new tariffs even as Mr Trump said he will meet Chinese President Xi Jinping at next month's Group of 20 Summit, an encounter that could prove pivotal.

China is also threatening additional retaliation against the US over the blacklisting of Huawei.

On Monday, the US Commerce Department granted 90 days of relief for certain US broadband companies using Huawei equipment.

Small phone carriers, the main US customers for Huawei, had worried that the ban could keep them from performing even routine activities such as ordering replacement parts or patching software.

Before trade negotiations hit a wall, some administration officials were reluctant to act against Huawei because Mr Trump had reversed similar measures imposed last year against ZTE, another Chinese telecoms equipment-maker that had been scrutinised over security.

The concern was that Mr Trump might reverse a Huawei order as a favour to Mr Xi or trade it away for soya bean purchases by China, the people said.

ZTE almost collapsed after the US Commerce Department banned it from buying American technology for three months last year.

Mr Trump undid the sanctions at Mr Xi's request and directed his commerce secretary to negotiate a settlement with the company.

Now that Huawei is on the US Commerce Department list, some national security officials remain concerned that President Trump could scrap the order for the sake of the broader trade negotiations.

The White House responded to requests for comment on Monday night by referring to a briefing last week on Mr Trump's executive order restricting US suppliers' access to foreign companies.

However, Huawei has been preparing for the US move since at least the middle of last year, hoarding components while designing its own chips, according to people familiar with the matter. The company is said to have stockpiled enough supplies to keep its business running for at least another three months.

Its executives believe their company has become a bargaining chip in the US-China trade war, and they will be able to resume purchases from American suppliers if a deal is reached, the sources said.

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A version of this article appeared in the print edition of The Straits Times on May 23, 2019, with the headline 'Trump held off on blacklisting Huawei until talks failed'. Print Edition | Subscribe