On Tuesday, U.S. President Donald Trump modified the ban on Chinese technology company Huawei, a multinational telecommunications equipment and consumer electronics manufacturer. The U.S. has been watching the company very closely for a few years, and now with trade tensions between China and the U.S., the company is being used as leverage against China.
For the past year, the U.S. and China have been in trade and tariff talks but have never reached a mutually beneficial agreement. The countries were planning additional trade negotiations a few weeks ago, but Trump grew impatient and decided to hike tariffs on $200 billion worth of Chinese goods, threatening to extend tariffs to an additional $300 billion worth of goods. China retaliated with higher tariffs on $60 billion worth of U.S. goods, which will start in June.
This modified ban on Huawei means that the president is allowing U.S. companies to do business with the telecoms titan for another three months. Asian and European stocks and U.S. futures increased on this news but not before we saw a lot of U.S. tech stocks fall on the news of a Huawei ban.
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Many U.S. tech companies rely on Huawei’s services and equipment. Shares of chipmakers Qualcomm, Broadcom, Micron Technology, and Nvidia fell by more than 3% on Monday. The Nasdaq is very tech-heavy, and the index was down 1.5% thanks to the ban.
The U.S. Commerce Department has granted Huawei a temporary license, which means that the company is able to buy U.S. products to maintain its networks and release software updates on existing smartphones and tablets. However, Huawei is still banned from buying American components to manufacture new devices.
Jasper Lawler, the head of research at London Capital Group, said, “Yesterday [Monday] was a big reality check for Trump and shows the incomplete information available for his decision.”
Lawler went on to say:
This latest move by Trump shows just how haphazard his policies are and also how pervasive Huawei goods and technology are.
The United States has been watching Huawei due to suspicions that the company could be engaging in illegal activity. It’s still unclear whether that information is accurate or if the proof behind those allegations is verifiable. But at this point, taking into account his trade war with China, Trump could be using Huawei as a bargaining tool, exploiting the company’s goal of becoming the world’s top smartphone maker and its position as a key player in 5G technology and expansion.
Neil Wilson, a chief market analyst for Markets.com, said:
Whether it’s Huawei or tariffs, I would see all of this in the broader context of giant tug-of-war between two superpowers being played out in front of our eyes. As such, the more this goes on the lower the chance of a meaningful resolution to any of it.
U.S. companies are now allowed to work with Huawei for the next 90 days, which gives the U.S. and China more time to negotiate and reconsider any rash decisions that could significantly impact both economies. Since the ban has been adjusted, Alphabet Inc.’s Google said on Tuesday that it plans to work with China’s Huawei. Previously, Google had said it would cut ties with Huawei to comply with Washington’s decision. Consider the possibilities for what it might need to do if a ban goes into full force again.
The next 90 days are going to be important for all countries, not just the U.S. and China. We’ve already experienced a hint of what could happen if a ban goes into full effect or if other similar decisions are made.
Until next time,