Half a year after the arrest of its chief financial officer by Canadian police, the world’s biggest telecommunication firm suffered a new blow after the U.S. government put it on a list that effectively bans the named companies from acquiring parts or technology from American companies.
At the direction of President Donald Trump, the Commerce Department announced that it was adding Huawei Technologies and around 70 associated companies to its “Entity List.” The restrictions remain in effect unless U.S. authorities give Huawei special approval to make acquisitions.
Reuters reported that according to U.S. Commerce Secretary Wilbur Ross, the president endorsed the decision in order to “prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”
The ban came after an executive order Trump made earlier in the day that restricts American companies from making use of telecommunications equipment produced by companies considered a threat to U.S. national security. The order, which makes use of presidential emergency powers, told the Commerce Department to cooperate with other agencies in carrying it out.
Relations between China and the United States have been difficult since the Trump administration launched a trade war last spring in response to decades of Chinese companies and the Chinese government operating using unfair business principles, or breaking laws.
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Diplomatic efforts to resolve the trade disagreements took a further dip in early May when Beijing suddenly backtracked on earlier progress that had been made over multiple rounds of trade talks. In response, the United States raised tariffs on US$200 billion of Chinese imports from 10 percent to 25 percent, ending a “truce” that had been in effect since December.
National security risk
Trump’s executive order did not name Huawei specifically, but the Chinese tech giant has recently been at the center of controversies involving cybersecurity and industrial espionage, as highlighted by Huawei’s close ties to the Chinese government.
Huawei founder and CEO Ren Zhengfei was a communications engineer for the Chinese People’s Liberation Army, and top executives in the ostensibly private firm have connections to Chinese intelligence agencies as well as to officials associated with Jiang Zemin, former general secretary of the Communist Party.
In December, Huawei chief financial officer Sabrina Meng Wanzhou, Ren Zhengfei’s daughter, was arrested while waiting for a layover in Vancouver, Canada. She was wanted for Huawei’s alleged sale of electronic components to Iran in violation of U.S. sanctions and is currently living in Canada on bail while local courts decide whether or not to extradite her to the United States.
Huawei has denied all claims that it serves as an actor for the Chinese state, but U.S. Secretary of State Mike Pompeo rejected these assertions. On May 23, Pompeo noted in a statement that Chinese firms, whether private or state-owned, are required by law to assist Beijing in its intelligence-gathering efforts.
“To say that they don’t work with the Chinese government is a false statement,” Pompeo said, referring to what Ren Zhengfei had said earlier in response to the ban. “He is required by Chinese law to do that. The Huawei CEO on that at least isn’t telling the American people the truth, nor the world.”
Meng Wanzhou, along with two Huawei organizations in the state of Washington, was charged by U.S. prosecutors in January for bank and wire fraud in connection with violating the Iran sanctions. A federal grand jury in Seattle indicted Huawei for spying on T-Mobile.
According to the court, Huawei systematically encouraged its employees to steal trade secrets of U.S. companies. The indictment states that Huawei “established a formal schedule for rewarding employees for stealing information from competitors based upon the confidential value of the information obtained.”
Huawei has also come under scrutiny in its efforts to sell itself as the only viable supplier of cheap 5G mobile network infrastructure, and has signed contracts for 5G development with 30 countries as of late February. Detractors warn that entrusting Huawei with this infrastructure opens up security risks, given the possibility of the company providing the Chinese government with access to built-in backdoors in the networks that could be used for spying and surveillance.
In early 2018, the Trump administration put a short-lived ban on sales of U.S. technology and electronic components to ZTE, a Chinese state-run competitor to Huawei. The ban, which was soon lifted reportedly out of President Trump’s consideration for his personal friendship with China’s President Xi Jinping, would have hamstrung ZTE’s ability to do business, as many Chinese electronics rely on U.S.-built parts that cannot yet be produced in China.
Observers say that the ban on Huawei could create a similar crisis for the firm, which also makes heavy use of American suppliers.
On May 19, Google announced that it would suspend its partnerships with Huawei, then clarified that it would allow for a grace period to allow the Chinese company time to adjust. To replace its Android smartphone operating systems, Huawei will have to roll out its own HongMeng software, an operating system that is still in development.