US sanctions on Huawei bite, but who gets hurt?

New York: The United States government has temporarily eased trade restrictions imposed last week on China’s Huawei, a move aimed at minimising disruption for its customers, but dismissed by its founder who said the tech firm had prepared for US action.

The US Commerce Department will allow Huawei Technologies Co Ltd to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets. The move came after US President Donald Trump’s blacklisting of Huawei in the escalating trade war between the US and China. The world’s largest telecommunications equipment maker is still prohibited from buying American parts and components to manufacture new products without license approvals that likely will be denied.

The US government said it imposed the restrictions because of Huawei’s involvement in activities contrary to national security or foreign policy interests. The new authorisation is intended to give telecommunications operators that rely on Huawei equipment time to make other arrangements, US Secretary of Commerce Wilbur Ross said.

However, Huawei founder Ren Zhengfei said the temporary reprieve move bore little meaning for the company as it had been making preparations for such a scenario. “The US government’s actions at the moment underestimate our capabilities,” Ren said in an interview with CCTV. He said Huawei was at odds with the US government, not US firms, and that Huawei is capable of making the chips it buys from the United States though that does not mean it will stop buying American chips.

The US move escalates trade-war tensions with Beijing, but also risks making China more self-sufficient over time. Here’s a look at what’s behind the dispute and what it means:

What's this about?

Last week, the US Commerce Department placed Huawei on its so-called Entity List, effectively barring US firms from selling it technology without government approval. Google said it would continue to support existing Huawei smartphones, but future devices will not have its flagship apps and services, including maps, Gmail and search. Only basic services would be available, making Huawei phones less desirable. Separately, Huawei is the world’s leading provider of networking equipment, but it relies on US components including computer chips. About a third of Huawei’s suppliers are American.

Why punish Huawei?

The US defence and intelligence communities have long accused Huawei of being an untrustworthy agent of Beijing — though without providing evidence. Huawei is a Chinese telecoms company founded in 1987. Politicians in the US have alleged that Huawei’s forthcoming 5G mobile phone networks could be hacked by Chinese spies to eavesdrop on sensitive phone calls and gain access to counter-terrorist operations. Allies who allow Huawei technology inside their 5G networks have been told they may be frozen out of US intelligence sharing. Australia, New Zealand and Japan have banned Huawei from their 5G networks.

What’s the politics behind the action?

The US government’s sanctions are widely seen as a means of pressuring reluctant allies in Europe to exclude Huawei equipment from their next-generation wireless networks. Washington says it’s a question of national security and punishment of Huawei for skirting sanctions against Iran, but the backdrop is a struggle for economic and technological dominance. The politics of Trump’s escalating tit-for-tat trade war have co-opted a longstanding policy goal of stemming state-backed Chinese cyber theft of trade and military secrets. Ross said last week that the sanctions on Huawei have nothing to do with the trade war and could be revoked if Huawei’s behavior were to change.

How will the sanctions bite?

Analysts predict consumers will abandon Huawei for other smartphone makers if Huawei can only use a stripped-down version of Android. Huawei, now the No 2 smartphone supplier, could fall behind Apple to third place. Google could seek exemptions, but would not comment on whether it planned to do so.

Who uses Huawei anyway?

While it’s not quite popular yet in the US, this brand is well-known in most of the rest of the world, including in the UAE — where people have been buying its smartphones in droves. Huawei quickly became an industry star by ploughing into new markets, developing a line-up of phones that offer affordable options for low-income households and luxury models that are siphoning upper-crust sales from Apple and Samsung in China and Europe. About 13 per cent of its phones are now sold in Europe, estimates Gartner analyst Annette Zimmermann. That formula helped Huawei establish itself as the world’s second-largest seller of smartphones during the first three months of this year, according to the research firm IDC. Huawei shipped 59 million smartphones in the January-March period, nearly 23 million more than Apple.

What are the ripple effects?

The Trump sanctions could have unwelcome ripple effects in the US itself, given how much technology Huawei buys from US companies, especially from makers of the microprocessors that go into smartphones, computers, internet networking gear and other gadgetry. The list of chip companies expected to be hit hardest includes Micron Technologies, Qualcomm, Qorvo and Skyworks Solutions, which all have listed Huawei as a major customer in their annual reports. Others likely to suffer are Xilinx, Broadcom and Texas Instruments, according to industry analysts.

Being cut off from Huawei will also compound the pain the chip sector is already experiencing from the Trump administration’s rising China tariffs.

COULD THIS STEP BACKFIRE?

Huawei is already the biggest global supplier of networking equipment, and is now likely to move towards making all components domestically. China already has a policy seeking technological independence by 2025. US tech companies, facing a drop in sales, could respond with layoffs. More than 52,000 technology jobs in the US are directly tied to China exports, according to the Computing Technology Industry Association, a trade group also known as CompTIA.

What about harm to Google?

Google may lose some licensing fees and opportunities to show ads on Huawei phones, but it still will probably be a financial hiccup for Google and its corporate parent, Alphabet Inc., which is expected to generate $160 billion (Dh588.48 billion) in revenue this year.

What's the Apple effect?

In theory, Huawei’s losses could translate into gains for both Samsung and Apple at a time when both those companies are trying to reverse a sharp decline in smartphone sales. But Apple also stands to be hurt if China decides to target it in retaliation. Apple is particularly vulnerable because most iPhones are assembled in China. The Chinese government, for example, could block crucial shipments to the factories assembling iPhones or take other measures that disrupt the supply chain. Any retaliatory move from China could come on top of a looming increase on tariffs by the US that would hit the iPhone, forcing Apple to raise prices or reduce profits. What’s more, the escalating trade war may trigger a backlash among Chinese consumers against US products, including the iPhone.

WHAT DOES IT MEAN FOR CONSUMERS?

Does this mean that Huawei users can no longer use Android at all?

No. The underlying Android operating system is open source, called the Android Open Source Project (AOSP), and can be used by anyone. AOSP is updated in step with Google’s version of Android, on which it is built. But it does mean Huawei has to supply its own updates from AOSP to the version of Android running on its phones, rather than Google’s updates. This is what the company has to do for its smartphones sold in China, which do not have Google’s various services.

Do I need to stop using my Huawei phone?

No. If you already have a Huawei smartphone then it will continue to operate as normal. “Huawei will continue to provide security updates and after-sales services to all existing Huawei and Honor smartphone and tablet products, covering those that have been sold and that are still in stock globally,” Huawei said in a statement.

What about security updates?

Huawei said it would continue to deliver security updates for its existing smartphones. It can do this via the AOSP. Huawei has a middling track record for delivering the monthly security updates made available by Google, so it is likely users will receive a similar level of service with security updates delivered at about the same pace.

— Guardian News & Media Ltd

— With inputs from New York Times, AFP & Reuters

US warns Chinese drones may steal data

Beijing: Washington has warned that Chinese-made drones could be giving spy agencies in Beijing “unfettered access” to stolen data, according to a report in American media.

The US Department of Homeland Security (DHS) sent out an alert on Monday, flagging drones built in China as a “potential risk to an organisation’s information”, CNN reported. The US government has “strong concerns about any technology product that takes American data into the territory of an authoritarian state that permits its intelligence services to have unfettered access to that data or otherwise abuses that access,” wrote CNN, quoting the DHS alert. The warning comes as China’s tech sector attracts unprecedented scrutiny amid the bruising China-US trade war.

The DHS report did not name any specific Chinese manufacturers, but the southern China-based DJI produces about 70 per cent of the world’s commercial drones. The Pentagon has banned the military from using DJI drones for security reasons since 2017. “Safety is at the core of everything we do, and the security of our technology has been independently verified by the US government and leading US businesses,” DJI said in a statement.

— AFP