U.S.-China Trade War – America’s Restrictions on Huawei

Posted: December 22nd, 2022

U.S.-China Trade War – America’s Restrictions on Huawei

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U.S.-China Trade War – America’s Restrictions on Huawei

Introduction

Sometimes companies encounter certain issues when striving to enter the international markets and this is evident in Huawei’s case that has to restructure its plans following the restrictions it experiences in the U.S. The trade war between America and China seems to be taking a new dimension in the way Americans target Chinese technology corporations with Huawei being one of the most affected. Already, Huawei cannot distribute its products around the U.S. following an order by President Trump, and this is set to affect revenue production. Companies in emerging markets should borrow vital lessons from the misunderstanding and use the insight to avoid problems that could derail their efforts to achieve their desired goals and objectives. The parties (The U.S. and China) into the conflict should work round the clock to come up with amicable solutions to the problem, lest both nations experience tougher times ahead.

Brief History and Company Description

Stationed in Shenzhen, Guangdong, China, Huawei is a Chinese international organisation that produces and supplies telecommunications services and apparatus, and offers a wide variety of electronic equipment and devices with the company now making significant strides in the production of smartphones. Since its foundation in 1987 by Ren Zhengfei, the company has significantly improved its operations, emerging from the sole production of phone switches to offering consulting and operational equipment and services to organisations within and beyond China, as well as manufactures a variety of communication devices and apparatus for consumers (Huawei Technologies, 2019). The company has more than 190,000 workers, and about 76,100 employees pay special attention on research and development (R&D) (Huawei Technologies, 2019). The firm is dedicated to improve its level of innovation, and this is evident through its establishment of R&D centers across the globe, and its opening of the Ox Horn Campus in Dongguan, China early this year. The company also invests highly in R&D with a total of 13.8 billion USD pumped into the area in 2017.

The company’s internationalisation process dates back in the late 1990s after it had introduced a better telephone switch that grabbed the world’s attention. Huawei in 1997 secured a business contract in Hong Kong to offer network services and products to a local company, and by 1999, it had expanded to India to carry on with its development of telecommunication initiatives (Huawei Technologies, 2019). Huawei formed a joint venture with 3Com in 2003, which specialised on producing and supplying organisational networking equipment, and by 2005 its orders in foreign nations had surpassed the domestic sales for the initial time. It is the same year that the company signed an agreement with Vodafone, which marked the first time a network and telecommunication corporation from China had gained the coveted approved supplier status from Vodafone’s international supply chain (Huawei Technologies, 2019). 2005 seemed to be a great year for Huawei in its foreign expansion because it is the time it established a contract with British Telecom for the provision of transmission equipment and deployment of MSAN (multi-service access network).Huawei formed a partnership with U.S.-based Symantec Corporation and called the venture Huawei Symantec with the objective of offer solutions to network data security and storage. Symantec became worried in 2012 that the partnership would bar it from receiving classified information about the U.S. government, especially pertaining to cyber threats. Huawei got the opportunity to venture in Australia in mid-2008 when Optus declared it would put up a technology research center with the Chinese firm in Sydney, and by October the same year the corporation joined Canadian firms (Telus Mobility and Bell Mobility) to roll out a GSM-based network that had just be launched (Huawei Technologies, 2019). The 2019 launch of the MGTC in Malaysia further depicts how much the corporation is dedicated to exploit the global markets (Huawei Technologies, 2019).

Today, the corporation has distributed its services and products in at least 170 nations, and by 2011, it ran 45 of the 50 biggest telecom administrators. Huawei’s networks that are more than 1550 reach almost one third of the globe’s population. Huawei in the latter parts of 2012 triumphed against Ericsson to become the world’s biggest maker of telecommunications apparatus, and conquered Apple in 2018 to take the second position in the production of smartphones only giving in to Samsung (Huawei Technologies, 2019). The group reported in December 2018 that its yearly revenue had increased to 108.6 billion USD, a 21% upsurge from 2017 (Huawei Technologies, 2019). The company hopes to improve its operations even further by entering into new global markets, a move the manufacturer believes will impact positively on its operations.

Description of the War between the U.S. and Huawei

The tension between the U.S. and Huawei primarily emanates from the China-America trade battle, which happens to affect business in many areas. The escalating deficit between the U.S. and China could be one of the reasons the trade war continues to take effect, while some scholars believe the rush to dominate technologically also contribute to the dispute. Mosbergen (2019) elaborates on the trade discrepancy between China and the America and argues that the deficit was around $417 billion as of mid-2018 with the huge disparity existing because exported items to China from the U.S. only accounted for 119 billion USD, while imported items from the People’s Republic of China covered nearly 541 billion USD. The trade shortfall between the Western and Eastern nations have augmented begging 2012 with the number swelling from $316 billion in 2012 to $365 billion in 2015 then fell again to $346 billion by mid-2016 (Mosbergen, 2019). Such occurrences have compelled the U.S. to place stricter trading policies on China, which has culminated to the trade war.

One of the drastic effects of the trade war is increased tensions between the U.S. and China’s tech giant, Huawei. Whereas industry analysts feel the tensions is as a result of the trade war, Huawei’s founder Ren Zhengfei believes America is becoming uneasy because of its introduction of the 5G technology, which according to trump could be a major global security (Whalen, 2019). The American intelligence feels Huawei receives the backing of Chinese military, and that such a joint venture could offer China with some insight on the communication networks of rival nations (Whalen, 2019). America has raised the concern even as a law in China permits corporations to liaise with the state on matters of national security, a provision which further pushes America to oppose Huawei’s technology. 

To make the matters worse, President Trump issued an order on May banning all trading with the Chinese firm, and ceasing distribution of spare parts across the country. The restriction Huawei faces in the U.S. will definitely strain its efforts to carry out business in the Western world, and Google confirmed after the President’s ban that it is restricting Huawei’s reach to the Android OS (operating system) on which the Chinese manufacturer depend (Kuo, 2019). Furthermore, Google has postponed until transactions with Huawei involving the transfer of software, hardware, and services apart from those that are publicly available. Google also announced following the declaration by Trump’s administration that it will follow other American firms in restricting sales to Huawei, although some tech companies in the U.S. are seeking from the Commerce Department for licenses that would permit them to continue transacting with the Chinese firm (Kuo, 2019). It is apparent that if America’s ban on Huawei holds, the manufacturer would not be in a position to come up with cutting-edge devices and innovation, and will be locked out of the international communication equipment market where the company has emerged to be a dominant player over the last ten years.

Already, the stakeholders, particularly from Huawei are beginning to doubt whether the misunderstanding with the U.S. will be beneficial to the company. The Deputy Chairman at Huawei (Ken Hu) feels that the much investment the company has in the U.S, particularly with regard to R&D could possibly go in vain if nothing happens to salvage the situation (Kuo, 2019). Some sector analysts also doubt whether the defensive approach Huawei takes will allow it secure it first position in the sales of 5G wireless equipment, which could be a major boost for the production of smart appliances and driverless cars. The leader in the Chinese firm, for example, refuted the 90-day allowance Americans offered the company under which the two nations could continue making some trade to avoid network blackouts, and said that Huawei is not shaken by America’s restrictions and threats (Kuo, 2019). Jeremy Thompson who serves as Huawei’s top executive in the UK feels America’s restrictions serve as a major blow to the smartphone maker because the timing of the conflict could significantly affect the organisation (Kuo, 2019). The battle over the Chinese company has escalated tensions in a trade war that heightened between the globe’s top economies with both parties into the tussle placing high tariffs on each other as negotiations seems to have failed to yield the anticipated outcome.

Huawei’s founder is afraid the company might fail to generate up to 30 billion USD in anticipated sales in the next a couple of years because of the penalties pronounced by America, keeping the company’s global revenue around 100 billion USD in 2019-2020, compared with the 105 billion USD garnered last year (Whalen, 2019). Other than the loss of revenue and slow progress in production, the misunderstanding seems to be taking a legal dimension following the arrest of some people connected to Huawei. Last year, for example, Canadian authorities apprehended Ren’s daughter as well as the Chief Financial Officer at Huawei following a request by the American Justice Department, on allegations of wire and bank fraud linked to an alleged Huawei’s plan to evade the sanctions America has placed on Iran (Whalen, 2019). Unless the teams into the tussle find an amicable solution to the matter as soon as possible, Huawei as well as America will continue to experience tough times ahead.

Even as Huawei continues to deal with the issues it experiences in the U.S. the company leaders and workers feel that there is no time to focus on the differences because this could create more harm on business operations. Despite all these unfortunate occurrences, Ren is optimistic the company will continue to survive and excel, and will not relent in its investing in better technologies such as cloud computing and artificial intelligence (AI) because there is no way the firm would be beaten to death (Whalen, 2019). Ren also thinks the technological decoupling between America and China is not in the company’s interest, and that the tussle will lead both groups to suffer (Whalen, 2019). Employees at the various stations also feel it is time for the company to develop a strategic plan that would make it easy to progress with work regardless of the ongoing tensions between the U.S. and China (Whalen, 2019). Ocean Sun who has served at Huawei for many years feel that the group is ready to provide answers to customers who might wonder what would become of them, and also to dialogue with buyers as well with different companies that work together with the Chinese manufacturer.

Lessons from the Tussle

Companies in emerging economies such as Brazil, Russia, India, and China acquire essential lessons from the misunderstanding between the U.S. and Huawei that could help to prevent similar occurrences in the coming years. One of the vital lessons from the tussle is the need to consider the possible threat of a technology or innovation before going ahead with production to avoid any possible inconveniences that could occur as it already happens with Huawei. The companies should assign workers in the R&D department the role to find out the possible effects of a technology and give a detailed report on the same to allow room for any negotiations or modifications should there be need. Companies if possible should invite experts from various organisations to share information regarding a technology or innovation because this could present the chance to identify issues that could turn out to be problematic in the coming years. The groups or teams discussing the possibility of applying or introducing a particular technology, nevertheless, should be keen not to expose secrets that could expose them to competitors because this could have some negative effects on business operations.

Above all, companies in various emerging markets gain awareness on the need to adopt suitable conflict resolution mechanisms that would make it easy to deal with the issues such as the one Huawei experiences. Many scholars regard dispute resolution at the law courts to be an ineffective approach because of the many demerits associated with the process. Legal procedures are usually costly and may take unnecessarily long to find a solution to a problem (Strazisar, 2018). Many organisations are also turning away from settling cases in court because it only display their issues to the public, which is more destructive to the business, and because the process may not be fair, especially if either of the sides employ the use of corruption and bribery (Strazisar, 2018). Huawei and America, therefore, should consider employing some of the effective alternative dispute resolution (ADR) mechanisms that have yielded positive results in many scenarios. The parties into the conflict, for example, may choose to apply negotiation where both sides meet and agree on the most suitable terms that would favour both sides (Strazisar, 2018). The groups may also choose to apply mediation or arbitration where an external neutral person is invited to help find an amicable solution that would take the desires of all parties present into consideration (Strazisar, 2018). Even though using the ADR methods could present some limitations the chances of reaching the correct decision is high, and operations between America and China could get back on track once again.

Conclusion

The study pays close attention to the effects of the trade war between America and China and describes how Huawei finds itself in a tough position following the banning of its operations in the U.S. by President Trump. Even though Huawei’s desire is to make its research and development practices much better and to secure more space in the global market, it has to address the issues it now faces in the U.S., which could affect its revenue generation. Huawei needs to bring America on board to iron out the issues because already the misunderstanding is resulting in arrests, as well as placement of unnecessary tariffs that could only affect business between the two economic giants. Huawei customers and all other stakeholders are beginning to get worried of the company’s future although the group’s leaders and employees are optimistic the situation will not last for long. The effects of the tensions between the U.S. and Huawei pass vital lessons to other companies in emerging markets that learn the essence of sharing ideas with others, particularly on innovations that could evoke controversy, as well know the need to apply effective conflict resolution approaches that would not result in legal confrontations.

References

Huawei Technologies. (2019). Huawei. Retrieved from https://www.huawei.com/en/?ic_medium=direct&ic_source=surlent

Kuo, L. (2019). There will be conflict: U>S. has underestimated Huawei, says founder. Retrieved from https://www.theguardian.com/technology/2019/may/21/there-will-be-conflict-huawei-founder-says-us-underestimates-companys-strength

Mosbergen, D. (2019). Chinese state media cautions U.S. as trade war heats up: “Don’t say we didn’t warn you. Retrieved from https://www.huffpost.com/entry/china-us-trade-war-warning_n_5cefa7c8e4b0888f89d16a62.

Strazisar, B. (2018). Alternative dispute resolution. Journal of the Higher School of Economics, 3, 214-233.

Whalen, J. (2019). Huawei digs in for a long battle with the U.S. Retrieved from https://www.washingtonpost.com/business/2019/06/23/huawei-digs-long-battle-with-us/?noredirect=on