Seen in that light, the ban on the use of US technology is an existential threat to China’s leading telecommunications company and a blow to its wider aspirations.
Huawei’s world-leading 5G wireless technologies have already been banned from being deployed in US networks (and Australia’s) on national security grounds, and now the US is trying to effectively kill off the world’s second-largest mobile handset manufacturer’s smartphone business.
Google’s announcement that it will limit the Android software services it provides to the Chinese company has grabbed most of the headlines.
Denial of access to the Android operating system, Google’s apps such as Gmail, YouTube and Google Maps and the other 2.5 million apps within the Google ecosystem will inevitably kill off Huawei’s business outside China.
It isn’t, however, just Google that supplies Huawei. Chipmakers such as Qualcom, Broadcom, Intel and others and, for Huawei’s tablets and laptops, software groups such as Microsoft are also going to be caught by the ban.
The US imposed a similar ban on another Chinese telecommunications company, ZTE Corp, in 2017 after it was accused of exporting US technology to North Korea and Iran in breach of US sanctions.
The ban almost destroyed ZTE before, as a “gesture of goodwill” towards China in the earliest phase of the trade negotiations, the ban was lifted.
The latest move on Huawei sent shudders through the US equity market as investors realised how ubiquitous the US component of its supply chain is, and began to contemplate China’s likely response. Shares in all the big technology stocks, and the chipmakers in particular, fell quite heavily.
Even those not directly affected, such as Apple (down more than 3 per cent) were sold off.
The supply chains for both China’s tech sector and America’s are heavily entangled, as are the markets for their production.
China is the major manufacturing base, for instance, for Apple handsets, as well as a major market. While Huawei uses US chips in its products, it also represents a major customer for US chipmakers.
If China retaliates – and why wouldn’t it? – there will be substantial self-inflicted collateral damage to the US technology sector.
The technology front in the trade war could spread beyond mobile phone and 5G technologies.
There are already suggestions that China, as the world’s dominant supplier of the rare earths vital to the manufacture of advanced weapons, cell phones, wind turbines, LED lights and hybrid and electric cars (Australia’s Lynas Corp is the major non-Chinese supplier), might cut off its supply to the US and others. That would be very disruptive.
It is conceivable that the Trump administration saw the Huawei ban as just another form of leverage in the failing trade talks with China, a mechanism for forcing China to re-start the negotiations on America’s terms.
If so, it would be a crude and risky tactic and one that could easily rebound if China regards it as a declaration of all-out war.
If it is more than that – if it reflects the ambition of the China hawks in the administration of stunting China’s economic growth and technological development by denying it access to US technologies – then it will mark a far more profound and structural divergence between the world’s two largest economies; the erection of a “digital Iron Curtain”, as the New York Times described it.
That would have complex and unavoidably unpleasant implications for the rest of the world, but most particularly for Australia, with its economic dependence on China and strategic reliance and historic alliance with the US.
Stephen is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.