Trump ban on China's Huawei fans trade war flames

By Rachel Layne

/ MoneyWatch

Trump targets China with executive order

Moves by the White House and the Commerce Department to restrict Chinese telecommunication giant Huawei from doing business in the U.S. risk intensifying an already fierce trade war with China.

"The Trump administration action is a grave escalation with China that at minimum plunges the prospect of continued trade negotiations into doubt," analysts at Eurasia Group wrote in a report. "Unless handled carefully, this situation is likely to place U.S. and Chinese companies at new risk."

Here's a look at what happened and why it could mark a dangerous new chapter in the dispute between the world's two largest economies.

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What the U.S. did

Mr. Trump on Wednesday issued an executive order that bans U.S. phone carriers from using technology by "foreign adversaries" deemed to pose "unacceptable risks" to national security. While the order doesn't name specific countries or companies, it follows months of U.S. pressure on Huawei and gives the Commerce Department 150 days to draft regulations. The agency also expected to restrict ZTE, another large Chinese telecommunications company Mr. Trump gave a reprieve to last year.

Shortly after Mr. Trump's order was signed, the Commerce Department said it put Huawei on a blacklist that could bar the company, along with 70 affiliates, from doing business with American companies. That means Huawei can't buy parts and components from American companies without U.S. government approval. The U.S. has long worried that Huawei's equipment could be used by Beijing to conduct espionage activities, claims the company denies.

Huawei on Thursday fired back via Twitter, saying the decision will do "significant harm" to the company's U.S. business partners and cost "tens of thousands of American jobs."

Why it could worsen the trade war

The new curbs on Huawei come less than two weeks after talks between the world's two biggest economies aimed striking a trade deal disintegrated. Mr. Trump unexpectedly raised tariffs on $200 billion in Chinese imports to 25 percent and said he is considering additional levies on every good the U.S. buys from China.

Tariff hike on Chinese goods would mean 25% price increase for Americans

That came after the White House said China reneged on commitments it had previously agreed to during the trade talks. China almost immediately retaliated with its own round of new tariffs.

Tariffs already imposed on Chinese imports will hurt U.S. consumers and companies, most economists contend. That's because companies that import the Chinese goods pay the levies and tend to pass the higher cost onto customers. Oxford Economics today estimates that the most recent escalation to 25 percent tariffs on $250 billion in Chinese imports will cost each U.S. household $490 next year and cut America's economic growth by 0.3%.

Why did the U.S. target Huawei?

Huawei is one of China's flagship companies, and a symbol of the country's aspirations to global tech leadership as outlined in its "Made in China: 2025" plan. Mr. Trump and U.S. trade officials have singled out the initiative as a threat to American dominance in artificial intelligence, robotics, energy and other key sectors.

To that end, the clampdown represents a battle between the U.S. and China over the future of 5G, the souped-up telecom networks that promise speedier phones, enhanced virtual and augmented reality, the so-called Internet of Things, and other technological advances.

Yet Mr. Trump worries about the potential for espionage and who will get the technological upper hand in the race for 5G business. Those fears underline the growing competition between the U.S. and China for economic, technological and even military influence, with lawmakers across the political spectrum viewing China as America's greatest rival.

Huawei founder: "5G is not an atomic bomb"

Phone companies like Huawei's networking and telecom equipment because of its lower cost and technological edge, Bloomberg notes. But Huawei also relies on American chipmakers to produce semiconductors and other components needed to run new wireless networks.

"Just two U.S. firms make 98% of the programmable chips used in 5G networks," U.S. Senator Marco Rubio said in a tweet Thursday. "When they lose access to these chips Huawei won't be able to offer an end-to-end option on the 5G network."

Last year, Mr. Trump gave Huawei rival ZTE a reprieve amid arguments that it violated sanctions on doing business with Iran. Huawei is also accused of stealing intellectual property, which critics say way for enhance Beijing's ability to spy.

How China could respond

China has range of options it could use to disrupt U.S. companies — from Boeing to Apple to GM — that see the vast Chinese market as a key to growth. For example, Beijing could withhold licenses; impose new taxes that raise the cost of doing business; start regulatory investigations; slow down customs clearances; delay visa applications; or use health and safety rules to stifle a company's operations.

"The [Trump] administration's actions likely invite retaliatory steps against U.S. companies operating in China, and further complicate the path to resolution of the trade dispute," Ed Mills, an analyst at Raymond James, said in a report.

The U.S. move to blacklist of Huawei doesn't take effect until the order is published in the Federal Register, a record of all government actions. The Commerce Department statement didn't give a timeline for when that could happen, an invitation for Chinese officials to strike a trade deal for the sanctions take effect.

— The Associated Press and CBS News' Grace Segers contributed to this report

First published on May 16, 2019 / 4:21 PM

© 2019 CBS Interactive Inc.. All Rights Reserved.

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