Huawei: Could Donald Trump's tech war lead to Chinese firm's collapse?

Google has suspended Huawei's support for Android, becoming the latest company to reconsider dealings with the Chinese technology company - but how bad might the fallout be?

Ben Chapman
Tuesday 21 May 2019 07:17
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Google blocks Huawei phones from Android updates after Trump blacklisting

Google suspended support for its Android operating system on Huawei smartphones after an executive order from Donald Trump prohibiting “foreign adversaries” using American tech without government approval.

Mr Trump accuses the world’s second-largest smartphone maker of allowing its equipment to be used by Chinese spies.

But what exactly has Google done and what impact might it have?

To comply with US government changes, Google has suspended Huawei's Android license meaning that devices will no longer receive key software and security updates for the operating system that they rely on.

Existing customers can update their phones and apps, but won't be able to download future versions of Android. Upcoming phones will go without apps like the Google Play Store and Gmail.

Chipmakers including Intel, Qualcomm, Xilinx and Broadcom have told employees they will not supply Huawei until further notice.

What effect will this have?

It marks an escalation in the trade war between China and the US that could have far-reaching implications.

Huawei is reliant on parts and software from the US which it will no longer be able to buy.

If the ban is applied stringently, it could seriously damage one of China’s most high-profile companies employing more than 180,000 people.

Huawei has made contingency plans but Trump's executive order is likley to affect companies and jobs in China, the US and beyond.

US companies that make components for Huawei stand to lose a significant slice of business from further damage to trade relations with China, the world's largest market for smartphones, personal computers and other mobile devices.

American and European firms also depend on Huawei’s cheap networking equipment.

A Huawei thermal engineer performs a heat test in the research and development area of the Bantian campus

Trade war escalation

Perhaps most importantly, an intensification of the trade war between the US and China could have damaging effects on global stability more generally.

Huawei, with revenues of more than $100bn last year, is seen as a national champion in China.

It feels that it is being treated unfairly by Trump in a battle that is less about national security fears than it is about inflicting damage on rivals to American firms like Apple, Google and Amazon.

Until now, Beijing has repeated its line that increasing protectionism is bad for all parties; a line that most observers firmly agree with.

But if Huawei is badly hurt by the latest US attacks, Chinese authorities are unlikely to take it lightly.

What might Beijing do next?

China’s Foreign Ministry spokesperson Lu Kang said on Monday that trade and investment between countries "must be based on mutual respect, equality and mutual benefit” but remained tight-lipped on potential countermeasures.

Hawks in China have called for tough retaliation such as banning exports of rare earth metals - important for many electronic components - to the US.

A replica of Versailles is seen in the Paris area of Huawei's new sprawling 'Ox Horn' Research and Development campus

And Washington?

The US president doubled down on his belligerent rhetoric, telling Fox News that he was “very happy” with the trade war and that China wouldn’t become the world’s economic superpower on his watch.

“We’re taking in billions of dollars,” Mr Trump said. “China is obviously not doing well like us.”

Mr Trump appeared to confirm a view of the world economy as a zero-sum game among competing nations.

“Our economy has been fantastic,” he said. “Because they were catching us, they were going to be bigger than us.

“If Hillary Clinton became president, China would have been a much bigger economy than us by the end of her term. And now it’s not even going to be close.”

The real danger is that the globalisation that has opened up markets and helped to increase international co-operation goes into reverse. Such periods in history have not tended to end well.

(Getty Images

Could Huawei collapse?

Huawei is in pretty good shape. It overtook Apple this year to become the second-largest smartphone maker in the world and is the leading supplier of the equipment for mobile phone networks.

Despite signs of a slowdown in the smartphone market, Huawei grew sales 50.3 per cent on last year now has 17 per cent of global market share.

In China, Trump's changes will have less impact as no phones are allowed to use Google's apps.

But the company will have a big job to do to source new parts from suppliers outside the US while at the same time implementing an alternative to Android.

Still, it would take a widespread, concerted effort from suppliers and customers to topple a company of Huawei's size and strength.

Of course, this is exactly what Trump is trying to mount, with the help of US technology firms and global political allies.

To deal with the threat, Huawei is said to have stockpiled vital components to keep its business running for at least three months. It will also have the backing of Beijing to help it weather its current troubles.

Suppliers outside the US may have more freedom to act than their US counterparts. For example, Infineon Technologies — one of Europe’s largest chipmakers — said the majority of products it delivers to Huawei are not subject to US restrictions while Austria-based AMS also said that it had not suspended shipments to Huawei.

Could this backfire for Trump?

Jeremy Thompson, Huawei's UK executive vice president said that the company had developed its own operating system in preparation for US action.

“We have a parallel programme in place to develop an alternative… which we think will delight our customers,” Mr Thompson told the BBC.

“In the short-term it's not good news for Huawei, but I think we can manage that.”

He added: “This is 100 per cent about trade and we did expect something along these lines - not perhaps as cynically-timed as it is right now, but we are developing parallel operating systems - that's why we invest $14bn a year in R&D, and we have used some of that investment to find alternatives.”

Alternative software would have big obstacles to overcome. It remains unclear how many apps would be available for any new operating system, a key factor in determining whether consumers would take to it.

Samsung created its own Tizen OS but it failed to win much support. Nokia also tried and failed. It remains to be seen what Huawei has up its sleeve but it is understood to have been working on its software for years in preparation for this eventuality.

It raises the prospect that hundreds of millions of Huawei handsets could switch away from Google’s Android to a new rival operating system.

Given that Android is installed on more than 80 per cent of smartphones, some have argued that a new competitor to Google in this area is much needed.

If Huawei were to succeed where others have comprehensively failed, it's safe to say the outcome would not be the one that Donald Trump had in mind.

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