U.S. Huawei Restrictions Could 'Shoot American Companies in the Foot' as Foreign Rivals Develop Tech Alternatives

Fresh government restrictions on Chinese technology company Huawei could eventually harm American companies, experts warn.

Moves to stop Huawei from using U.S. technology or software to make semiconductors abroad were announced last Friday by the commerce department, which placed the Chinese firm on a trade blacklist last May over national security concerns.

Under the new rules, chip makers using U.S. equipment are now required to have a license before shipping components to Huawei or any of its subsidiaries, disrupting its ability to obtain vital components for its phones, laptops and smart-devices.

Reports surfaced that Taiwan Semiconductor Manufacturing Co., one key chipmaker, had halted Huawei orders, and the changes prompted a furious response from Chinese officials, who warned "all necessary measures" would be taken in response.

The Secretary of State, Mike Pompeo, branded the update as one way of protecting the integrity of future 5G networks from an "untrustworthy" company, but some experts told Newsweek that it could soon backfire, especially in the long-term.

Xiaomeng Lu, China practice lead at technology consultancy Access Partnership who previously worked at Information Technology Industry Council (ITI), told Newsweek the U.S. restrictions could "shoot American companies in the foot."

"Restricted by the regulatory change, American chip companies will lose significant... sales to their Korean, Taiwanese, Chinese and Japanese competitors.

"With this rising revenue stream, foreign chipset companies will be able to shore up investment, research and development in the next generation semiconductor technologies and potentially leap ahead of their American industry peers."

As Wired reported in March, before the official announcement, the rising fear is China and other rivals will start developing more alternatives to U.S. technologies.

For now, it's unclear how severe China's retaliation will be, but its state media quickly touted the idea that some U.S. companies could be put on an "unreliable entity list," naming some potential candidates as being Qualcomm, Cisco and Apple.

The Global Times, a tabloid newspaper known to act as a mouthpiece for the Chinese government, previously warned the U.S. move could kickstart a "tech cold war."

The publication blasted the new U.S. regulations as a "blatant attack," while conceding high-end chipsets are known to be "partially dependent" on American tech.

Some experts said that could soon change, however.

"Longer term, this pushes China to develop its own semiconductor value chain even more than it was already," technology analyst Dean Bubley told Newsweek.

"There are questions about global tech standards where U.S. and Chinese companies have to collaborate, in various institutions like 3GPP and IEEE.

"It could harm U.S. companies if they cease to be able to participate effectively and push for their preferred options. It also changes the geopolitical and economic risks faced by Taiwan, a major supplier of chips and electronics for many U.S. firms."

"It could backfire," said John Delaney, a telecom analyst with market intelligence firm International Data Corporation (IDC), about the Entity List updates.

"The restrictions may... prove to be a spur for a faster pace of competitive Chinese innovation, for example from Huawei's HiSilicon semiconductor organisation."

Sean Wright, an independent tech and security researcher, agreed, telling Newsweek: "There is a potential for the U.S. to be left behind in terms of technology."

"In this day and age, that's a bad thing, especially when it comes to trying to gain a competitive advantage over other companies and countries," he added.

The Entity List amendments likely halted development of Huawei's 5G chipset, the Kirin 990, which was being manufactured by TSMC. The firm has been looking at Chinese contract chipmaker SMIC as a possible alternative, CNBC reported.

Earlier, Huawei was suspended from using Google's full version of Android, meaning its new phones are missing Google Play store, Gmail and YouTube. It was forced to start developing its own application marketplace and mobile operating system.

Now, the U.S. appears to fear an over-reliance on foreign technology as it ramps up its own plans to roll out the fifth generation of wireless technology.

TSMC announced last week that it was planning to build an advanced semiconductor facility in Arizona, a $12 billion plant that would be making chips on U.S. soil.

But the plant was quickly scrutinized by Democrat senators who questioned if national security had been considered and asked about financial incentives TSMC may have been offered, asking the Trump administration to cease negotiations.

Last year, Huawei surpassed Apple to become the world's second biggest smartphone maker, according to IDC statistics, leaving it only behind Samsung.

In its own statements, Huawei argued the amendments were "discriminatory" and said its business would "inevitably be affected" by the new U.S. enforcement.

"This decision by the U.S. government does not just affect Huawei. It will have a serious impact on a wide number of global industries," the company said.

"The U.S. is leveraging its technological strengths to crush companies outside its own borders. This will only serve to undermine the trust international companies place in U.S. technology and supply chains. Ultimately this will harm U.S. interests."

But not all U.S. politicians appeared concerned, however.
"Chinese spy companies like Huawei undermine our export-control rules in order to access advanced computer chips made with American software and technology, Senator Tom Cotton (R-Arkansas) said in a strongly-worded release.

"The U.S government and responsible industry leaders must take strong action to cut off the Chinese Communist Party's access to technology that it uses to build a network of surveillance and repression around the world," he added last Friday.

CNN reported in May last year that U.S. export restrictions on the Chinese technology giant could prove costly for Silicon Valley, noting that in 2018 the firm spent $11 billion on products from U.S. businesses including Qualcomm and Broadcom.

But the U.S. grip remained strong. In August last year, TechCrunch reported the U.S. commerce department had received over 130 licesnse applications from U.S. suppliers who expressed a desire to do business with Huawei. It had approved none.

In this photo taken on May 27, 2019, a Huawei logo is displayed at a retail store in Beijing. FRED DUFOUR/AFP/Getty