A Case of Collateral Damage: American Suppliers Impacted By Huawei Sanctions

By: Nicole Wei The global 5G industry is emerging as the newest technological frontier, with promises of revolutionizing communication and bringing the world closer together. Developing and controlling this powerful technology has become a top priority for the world’s superpowers, especially the United States and China. However, techno-nationalism—the belief that a country derives power from its technological capacity—has empowered politicians to increasingly employ foreign policy that aims to suppress the technological capabilities of other countries, such as limiting interstate tech transfers. Notably, the ongoing US-China race to dominate the global 5G industry illustrates the extent to which techno-nationalist sentiments have pervaded strategic decision-making and economic relations between the two countries. At the center of the US-China 5G rivalry is Huawei—a Chinese tech giant that the US government has deemed a national security concern. American leaders have reasonable grounds to distrust Huawei. US intelligence officials have long been skeptical of the company’s self-proclaimed independence from the Chinese Communist Party. Furthermore, the company has been accused of stealing technology from American firms, and China’s poor record on intellectual property protection has not helped Huawei’s cause. In response to Huawei’s rise, the Commerce Department under the Trump administration adopted an approach in 2019 aimed at cutting the Chinese tech company off from two critical lifelines: American suppliers and European clients. By imposing sanctions that prevent companies at home and abroad from supplying Huawei with “semiconductors developed or produced from US software and technology”—in the words of former US Secretary of Commerce Wilbur Ross—the US government effectively cut Huawei off from key microchip suppliers, including Qualcomm and the Taiwan Semiconductor Manufacturing Company (TSMC). Besides targeting Huawei’s supply chains, the Trump administration also led an international boycott of the company’s products, with a focus on China’s largest clients in Europe. Although not all European leaders backed the United States from the get-go, Huawei certainly fell out of favor with American allies, as Western countries who stand by China in spite of US pressure are far and few between. For instance, only Angela Merkel’s Germany expressed public reluctance to crack down on Huawei, whereas the United Kingdom, France and Poland swiftly sided with the United States. Since about a quarter of Huawei’s revenue comes primarily from European markets, the company has much to lose in the event that European governments shut it out. While US sanctions have begun to take their toll on Huawei, American tech companies have faced staggering losses as well. This collateral damage is not surprising, since Huawei is one of the biggest clients of US semiconductor companies, and China is the United States’ largest trade partner. Qualcomm, for instance, reported a devastating 13% decline in revenue following the ban on exporting its products to Huawei. Consequently, the company has made attempts to lobby the US government for a special permit to resume business with Huawei, as it generates billions of dollars in revenue for Qualcomm annually. This behavior speaks to the level of economic interdependence between the United States and China, as well as the severity of the sanctions’ consequences for American suppliers. The loss of business with Huawei—and to a larger extent, other affiliated Chinese tech companies—implies not just loss of revenue for US suppliers, but also a decline in private sector funding for critical technological research. From the perspective of semiconductor industry leaders such as John Neuffer, CEO of the Semiconductor Industry Association, “sales of non-sensitive, commercial products to China drive semiconductor research and innovation here in the US, which is critical to America’s economic strength and national security.” While the federal government used to invest heavily in technological research and development, the private sector accounts for most of that funding today. Since the Biden administration assumed its leadership role, it has faced similar challenges in dealing with China: either maintain Trump’s hard-line policies against Huawei or heed the plea of American industry leaders. In the aftermath of the 2020 presidential election and the January 6 riots, Biden would risk appearing soft on China should he reverse Trump-era sanctions. Moreover, adopting a tough stance on China remains one of few issues that still garners bipartisan support. 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