America closes the last loophole in its hounding of Huawei

THANKS TO ITS high quality and low prices, Huawei’s telecoms gear is popular around the world. Not in America, where the Chinese giant is banished over (unsubstantiated) fears that it could be used by spies in Beijing to eavesdrop on Americans. But expelling Huawei from the United States—and pressing allies like Australia and Britain to do the same—was not enough for the Trump administration. It seems to want Huawei dead.

Last year the Department of Commerce (DoC) barred American firms from selling Huawei chips made in America, which oxygenate swathes of the global semiconductor industry. In May the DoC added a rule banning domestic and foreign firms from using American-built chipmaking equipment to create custom-made processors for Huawei.

On August 17th the DoC tightened the noose once again—this time, many experts think, for good. Its new rule prohibits anyone from selling any chips to Huawei, custom or not, if these were produced with American technology. This covers practically every chipmaker in the world, including those in China, thus closing loopholes that the global chip industry’s high-powered lawyers have found in the earlier edicts. The share price of MediaTek, a Taiwanese company which was hoping to sell Huawei generic components, plunged by 10% on the news.

The changes take effect on August 20th. After that, Huawei will start running down its stockpile of chips. It has been amassing them for months and probably has enough to last it into 2021, reckons Dan Wang of Gavekal Dragonomics, a research firm. But its customers, including European mobile operators using Huawei kit and in need of spares, will start panicking before then. And who would buy new network kit from a firm which may be unable to fulfil orders?

Huawei’s options are limited. It could sue, claiming that the DoC’s actions contravene America’s own laws, but its two ongoing lawsuits against the American government already look like long shots. Its suppliers, particularly Chinese ones, may sell it chips in breach of DoC rules. Yet that could provoke American ire—and Huawei-like sanctions against them, too.

America’s chip firms are also in a bind. The Semiconductor Industry Association said it was “surprised and concerned by the administration’s sudden shift” from an approach that balanced national security with corporate interests. Besides lost sales to Huawei, which bought $19bn in components from American firms last year, technology bosses fret that their government’s actions will drive investment away from them to rivals in other countries.

If Beijing retaliates with a counter-claim of jurisdiction over any product made in China, that would devastate the supply chains of Apple and other American technology firms. On August 18th China’s government accused America of “violating international trade rules”. But it has so far resisted striking back, perhaps counting on Mr Trump’s defeat in November’s presidential election by Joe Biden, who may take a softer stance against China.

The DoC can still issue licences to firms that want to keep supplying Huawei with components. American trade negotiators may want to use this power to extract concessions from China in ongoing trade talks to boost Mr Trump’s re-election chances, diminished by his mishandling of the covid-19 pandemic. Given the supposed threat Huawei poses, it may be odd to let it live in exchange for a few extra tonnes of soyabean sales to China. Then again, policy inconsistency has not been an obstacle for the Trump administration in the past. Many Western technology firms hope that remains the case.■

This article appeared in the Business section of the print edition under the headline “No more quarter”