Things were looking up for Huawei last month. Officials in the UK, Germany, and the European Union signaled they would defy US pleas to ban the Chinese telecommunications giant from building 5G wireless networks within their borders. Huawei also reported a 39 percent increase in first-quarter revenue. Then, on Thursday, the US Department of Commerce added Huawei to a list of companies considered a threat to US national security, meaning it would need permission to acquire US technology. Soon chipmakers like Intel and Broadcom reportedly stopped selling to Huawei, and Google pulled the company's licenses for key mobile applications like Gmail and the Google Play app store.
When the Trump administration barred US companies from selling to Chinese telecom company ZTE last year, ZTE said it would halt operations. The Trump administration later backed down, but ZTE's near-death experience demonstrates how reliant telecom companies are on US technologies. Huawei isn't as vulnerable as ZTE was, analysts say. Huawei makes some of its own chips, has bigger stockpiles of components, and isn’t as reliant on its handset business as ZTE.
Huawei has been downplaying the consequences of the US export restrictions. "The current practice of US politicians underestimates our strength,” Huawei founder Ren Zhengfei told Chinese media on Tuesday, according to The Guardian. "Huawei’s 5G will absolutely not be affected."
On Monday, the US government agreed to a 90-day exception to the export restrictions that allow Huawei to deal with US companies to support existing products. Google will still be able to provide updates, including security patches, to existing Android-based Huawei smartphones. Perhaps more important, Huawei will be able to buy chips and components necessary to maintain and support existing telecommunication infrastructure. That cushions the blow dealt by the Trump administration. It’s possible that the Commerce Department will renew the exceptions after 90 days to prevent problems for carriers that rely on Huawei’s equipment. But Huawei’s ability to build and support new products will be hampered.
The US government has long worried that Huawei could help China spy on US citizens by planting "back doors" in its telecommunications infrastructure gear or by reporting security vulnerabilities to Beijing before the rest of the world. Huawei denies that it has spied on behalf of China and argued that it would actually be illegal for it to do so, though legal experts don't agree with the company's reasoning. The concerns have largely kept Huawei out of the US telecommunications infrastructure, but the company continued to do business with US companies.
Even without the 90-day exemption, Huawei will still be able to use Google's open source Android operating system for its phones. But Huawei won't be able to bundle Google's app store with those phones. That might not be a big deal in China, where smartphone users rely mostly on domestic apps like WeChat. But losing its license to use Google's mobile apps will hurt Huawei's smartphone sales in Europe, says mobile industry analyst Chetan Sharma. Huawei has been encouraging developers to submit apps to its own Huawei App Gallery, much as Amazon runs its own app store for its Fire tablets. But that requires convincing app developers to participate in yet another app market. Plus, many Android applications rely on proprietary Google software to run. That means Huawei would also need to convince many developers to rewrite parts of their applications. Huawei might be able to offer replacements for Google's proprietary tools, but US developers might not be allowed to contribute to Huawei's app store because of the Entity List restrictions. Huawei has also been developing its own operating system, but will face similar issues in attracting developers.
Hardware might be a bigger concern for Huawei than apps. The company told Reuters that it will use substitutes for chips sold by US companies. In addition to making some of its own chips, Huawei might be able to buy chips for both its phones and network infrastructure gear from companies in countries like South Korea or Taiwan. But the longer the restrictions last, the harder it will be for Huawei to make do without sources for US chips.
In March, Huawei filed suit against the US government over legislation passed last year that banned government agencies from doing business with companies that use technology from Huawei and ZTE, arguing that the two companies were unfairly singled out. The suit challenges the US to provide evidence of nefarious action or intent by Huawei.
Even if Huawei wins that suit, it won't help with the current ban, says Julian Ku, a professor of law at Hofstra University. He explains that the Commerce Department has broad authority to limit exports, and judges are reluctant to second-guess the agency. “The chances of success are much lower than its lawsuit against the law passed by Congress,” Ku says. “That earlier lawsuit is a longshot, but a lawsuit trying to challenge the entity list inclusion would be a super-duper long shot."
That means that for Huawei, escaping US sanctions will rest on the US and China coming to a broader agreement to ease the distrust between the two nations. But an end to the trade war between the two countries isn't yet in sight.