Analysts condemn Trump trade handling of Huawei, question end-game

The latest round of Trump Administration trade restrictions against China’s Huawei shocked and angered U.S. semiconductor companies that fear a drastic loss of chip revenues and market share globally.

Three experienced technology analysts interviewed Tuesday questioned what U.S. Commerce Department officials are ultimately trying to accomplish by banning on Aug. 17 U.S. sales to Huawei and 38 Huawei affiliates in 21 countries.

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“What is the U.S. getting out of squeezing Huawei?” asked Roger Entner, an analyst at Recon Analytics.  “If they are trying to put pressure on the Chinese Communist Party, then they need to stop U.S. sales to any Chinese company because they have state capitalism.”

Entner estimated Huawei alone accounts for about one-fourth of annual U.S. semiconductor exports, or about $32 billion out of $120 billion.  “It’s a ton. It’s really a lot,” he said.  “Stock prices will tumble, there won’t be as much for R&D and U.S. companies will have to lay people off.”

“Everybody knows this is a Trump Administration move, but I’m missing the long-term strategy and the next step,” Entner added. “If they are ruining a foreign company because they can, that’s not a wise choice. If there is a higher goal to get the Chinese to do something they have not done, what is the next step?”  

If Trump is seeking negotiations with the Chinese over questions of spying with Huawei technology backdoors or theft of intellectual property from U.S. firms, it won’t be easy, Entner predicted.  “To think the Chinese will back down is not really credible, even naïve,” he said.

On Monday, the SEMI industry association for the global electronics design and manufacturing supply chain with 2,400 member companies, said the latest restrictions will lead to lost sales and an erosion of the customer base for U.S. origin items. 

A week earlier, the Semiconductor Industry Association, which represents 95% of U.S. semi companies by revenue, criticized the latest Commerce ruling for being overly broad and predicted “significant disruption to the U.S. semiconductor industry.”

SEMI also argued that there are ancillary impacts from the Commerce action, which will “fuel a perception that the supply of U.S. technology is unreliable and lead non-U.S. customers to call for the design-out of U.S. technology.”

Leonard Lee, an analyst at NeXt Curve, said Commerce has obviously faced a “learning curve” with understanding the electronics and semiconductor industries.  “SEMI and SIA are correct in their concern about the potential of new restrictions undermining market share, mindshare and trust in U.S. technology, especially given revelations of processor level flaws revealed by Spectre and Meltdown in early 2018,” he said.

“It’s important for Wilbur Ross and team to appreciate and understand the delicate but symbiotic balance that has been struck for years between the U.S. and China that fostered the formation of the global electronics and semiconductor industries and supply chains as we know them today,” Lee added.

Lee and Entner noted that Chinese firms are making significant investments in alternative chip architectures such as RISC-V to hedge against x86.  Chinese firms did so “in anticipation of today’s geopolitics and adversarial trade dynamics,” Lee said.

Entner said Chinese firms will ultimately set up joint ventures with VIA Technologies in Taiwan to develop x86 technologies.  “They’ll say screw the U.S.,” he said. 

Lee added that Chinese firms can resort to chip packaging technologies to gain competitive advantage as well. “It won’t be pretty if they do,” he said.

Patrick Moorhead, analyst at Moor Insights & Strategy, said the Commerce moves against Huawei will impact consumers, not just chip companies.  “Consumers lose with less competition, which leads to higher prices and less innovation,” he said.

Despite concerns about the latest Commerce actions, both Moorhead and Entner argued the U.S. does need to challenge China on concerns about theft of U.S. intellectual property and potential spying. “The country still does not respect U.S. intellectual property like it needs to,” Moorhead said.

Concerns about potential spying are legitimate, Entner said.  “I don’t think Huawei does widespread intelligence gathering for the Chinese government right now.  The thing is, they could when needed,” Entner said.

Huawei equipment, sold globally to telecommunications operators, does have security back doors that Huawei is not closing, Entner said.  “Huawei doesn’t have a bug-hunting program like other companies which is a red flag and bolsters what Commerce is doing. We’ve known about the back doors for many, many years,” he said.

What U.S. trade officials should do next concerning Huawei and other Chinese tech firms “is a very difficult topic,” Entner conceded. “I can see the concerns by the intelligence community and the concerns of semiconductor companies and the need to put pressure on China, but I’m missing the long-term strategy from Trump.” 

If Trump gets re-elected in November, the current policies will likely stay in place, and probably expanded, Entner said. If former Vice President Joe Biden gets elected, the current policies regarding Huawei will be adapted, but Biden “won’t undo everything” that Trump has done, he said. 

In the long term, Moorhead urged the next administration to push for symmetric trade rules between China and the U.S., as difficult as that may be.  “U.S. companies still cannot incorporate in China without giving up 49% of the company to a Chinese citizen.  Major U.S. digital brands are banned from China, including Google, Twitter, Facebook, Snapchat, Slack, Twitch and Dropbox. The country still does not respect U.S. intellectual property like it needs to.”

“I believe if China agreed to trade symmetry, the problem [with Huawei] would go away,” Moorhead said.

Officials at the Department of Commerce did not respond to requests to comment on this story.