The trade ban is part of a wider battle between the US and Huawei.Washington has moved to block the Chinese company, the world’s largest maker of telecoms equipment, on national security concerns.
1. WHAT IS THE TRADE WAR BETWEEN THE USA AND THE PRC?
From the very beginning of his run for the White House, Trump spoke of China as an existential threat to the US, the country is responsible for the hollowing out of US manufacturing and the loss of millions of jobs. China’s gain, he believes, has come at America’s expense.1
In May 2018, with a statement by the White House, President Trump has called the PRC to do more fair and reciprocal trade. In the statement, the problems in the field of trade were listed.Some of them are:
• For many years, China has pursued industrial policies and unfair trade practices—including dumping, discriminatory non-tariff barriers, forced technology transfer, over capacity, and industrial subsidies—that champion Chinese firms and make it impossible for most of the United States firms to compete on a level playing field.
• China has dumped and unfairly subsidized a range of goods for the United States market, undermining America’s domestic industry.
• China’s industrial policies, such as its “Made in China 2025” plan, harm companies in the United States and around the world.
• China imposes much higher tariffs on the United States exports than the United States imposes on China.
• China’s average tariff rate is nearly three times higher than the average United States rate.2
Trump’s Administration increased tariffs in order to close the foreign trade deficit. This was followed by the two states, increasing their customs duties. So the relations between the US and China have been tightening since Trump’s administration has started to increase the customs duty on imports to China and this is started to be called as a “Trade war” between the US and the PRC.
In 2018, the US brought $250 billion customs duty to China. Beijing responded by placing taxes on American products worth 110 billion dollars. Customs duties on Chinese goods of $200 billion that were planned to be increased from 10 to 25 percent from the beginning of this year, but were postponed, raised on May 10th, 2019 by Trump’s Administration because the negotiations with Beijing were moving very slow. And also Trump pledged to launch a 25 percent tax application for $325 billion Chinese goods in a short period of time. Trade war continues getting tense with the statements of the Us and China. 3
President Trump placed the trade wars on the World agenda again in the context of technology, On May 15th, 2019, when he added telecommunications equipment to the list of foreign trade bans, and declared a national emergency on the matter in the context of the prevention of foreign brands, technologies and services. President Trump issued an executive order banning US companies from using information and communications technology from anyone considered aa a national security threat. The same day, the Commerce Department placed Huawei and 70 of its affiliates on its “Entity List,” which is basically a trade blacklist that bars anyone on it from buying parts and components from US companies without the government’s approval first.
In terms of technology espionage, the United States considered the PRC and Huawei as a long-standing threat to national security. Trump Administration especially worried Huawei’s 5G technology to get into the USA. Because of the concern that the PRC may intervene in the operation of this technology by time and that this technology may be used as an espionage by China. Especially, the espionage on military is a serious issue between the US and Huawei, because it seems as there are relations with Huawei and the Chinese army. Its founder, Ren Zhengfei, is a member of the Chinese Communist Party and an engineer in the Chinese army. For many years, it has been emphasized that China demands from Chinese technology companies, such as Huawei to provide information, which it has obtained in other countries and that Huawei has expressed its concern about espionage. (You can achieve some links of the news on subject of espionage and also the announcement of Acting Attorney General Matthew Whitaker on January 28th, 2019 at the US Department of Justice’s web site4)
( It should also be noted 2 news:
1) Meng Wanzhou, the Huawei’s Chief Financial Officer, was detained in Vancouver on December 1st, 2018 at the request of US authorities. She’s accused by the United States of helping Huawei cover up violations of sanctions on Iran, according to Canadian prosecutors.5
2) On May 1st, 2019, British Prime Minister Theresa May has fired her Defense Secretary Gavin Williamson over the leaking of a key decision related to the Chinese telecoms company Huawei from a UK National Security Council meeting.6)
The prohibition of usage of the US-based software, such as Google, Whatsapp, Facebook, Twitter etc. in PRC has also great influence on these restrictions. Following the decision of the US government, Silicon Valley’s giant companies started to take similar steps. In addition to Google, such as Intel, Broadcom, Qualcomm, and Xilinx have announced that they have suspended their relationship with Huawei and will not provide product supplies.
Huawei has become the world’s second largest phone manufacturer by overtaking Apple. As the biggest phone manufacturer, Samsung is now predictable. In the first quarter of 2019, Huawei increased its sales by 50 percent compared to the first three months of 2018 and increased its market share to 17 percent by selling about 60 million smartphones. Although the Chinese giant coped with espionage cases, it did not abandon its policy of work and achieved this success in the first quarter of the year.7
Today, Huawei is one of the biggest technology companies in China and is the second biggest smartphone manufacturer in the world. It is the most invested company in 5G technology in the World. In 2018, it reached 200 million mobile phone sales worldwide. As of 2018, 3 of the top 5 companies that sell smartphones have become Chinese companies.8
The decision of Trump’s administration is undoubtedly the result of the Huawei’s commitment to be the worldwide leader in telecommunications, 5G technology and smartphone sales. After the announcement of the Trump’s administration, Huawei management responded with the same intensity. By several spokespersons, they are said that the company has an option to move forward without Google. “We have been making a plan for this possible outcome,” said Huawei’s Jeremy Thompson, executive vice president in the U.K, speaking to the BBC. “We have a parallel program in place to develop an alternative. We would rather work with Android but if it doesn’t happen in the future we have an alternative instead which we think will delight our customers.”9 The CEO of Huawei Ren Zhengfei said in the interview with Business Insider Japan that “Huawei is going to climb this mountain, And if we meet the US at the top, we’ll embrace them — one thing for sure we’ll make it out alive.” 10
Although The US Department of Commerce announced that some of the trade restrictions imposed on the blacklisted Chinese Huawei company have been suspended for 90 days, during the transition period, the Chinese company will be able to continue to purchase certain products produced in the US so that its operations are not affected worldwide. According to the report released on 20th of May, 2019, US companies may suffer a loss of $ 56.3 billion under these restrictions. At the same time, 74,000 jobs are in danger. In the long run, this situation seems to cause great damage to the US economy.11 On May 23th, 2019, President Trump has called Huawei “very dangerous,” but he said the U.S. is open to including the company as part of a future trade agreement between the U.S. and China.12 For now, the US may be considering using these sanctions as bargaining.13 But Huawei continues to take necessary measures and prepare itself for the problems that can be encountered. Huawei’s CEO Ren Zhengfei withdrew 57 factories and many companies abroad and wanted to recall all elite employees(about 40,000 employees ) to China althoug Trump’s latest statement indicates that the crisis may be solved soon. 14
Huawei prepares itself against this question: what if Trump implements the decisions taken?
3) IF TRUMP IMPLEMENTS THE DECISIONS TAKEN?
Google Play Protect and Google Play services will continue to work on Huawei devices that are currently on the market accocding to announcement of Android on May 20th, 2019.
Users of Huawei or Honor phones will no longer have access to new applications and updates to Google services. Because the devices were licensed through the Compatibility Test Suite (CTS) and Vendor Test Suite (VTS) processes. Therefore, Google may offer new versions of its products to users at the Play store and allow downloading of new applications without directly contacting Huawei. However, in the security updates the issue is a bit confused. Because Google usually gives code to android device manufacturers for software updates a month before announce it to the public. In this way, manufacturers are reviewing the program patches that are necessary for the update not to cause problems in their own applications and, if necessary, they update devices. Because the Google is prohibited in Mainland China, the devices are able to being used by android operating system which smartphone companies get from the open source Project. As in China, Huawei users can now get these patches only when it comes to the Android Open Source Project – Android Open Source Project (AOSP).15
But for Google Play Protect, because it is not being updated regularly in time, this means that Huawei users can be at risk for days or weeks when a serious flaw occurs. İn this case, there are two options waiting for Huawei.
A) Huawei should deploy its own software distribution and distribute its open source code to its users quickly.
B) Huawei should install its own operating system. (It has been working on this issue since 2012.)
Huawei has been preparing itself for the problems it is facing nowadays for a long time. Therefore, there is enough hardware stock for some time, and devices are made from this stock are able to connect Google Play Store and other applications for now. But as it is said upside, they might face serious problems on critical android security updates in future. Huawei’s competitiveness is expected to decrease in the foreign market due to the problems encountered in this new situation.
4) HOW WILL THE PEOPLE OWNED HUAWEI PHONES ARE GOING TO BE AFFECTED BY GOOGLE’S DECISION?
The following apps will not be available on the new phone:
• Play Store for music, apps and other media
• Google Photos
• Google Maps
• Google Drive
• Google Duo video call
• Using some of these services still will be possible on the internet, but most users do not prefer to do so.
Download third-party applications from alternative stores. However, Google is blocking the installation of its applications on non-licensed devices.
Furthermore, loss of access to GMS will prevent third-party application developers from accessing Google’s application programming interfaces. Therefore, some functions in some applications may not work.16
5) WILL THIS NEW SITUATION AFFECT SALES IN UKRAINE?
Today, Huawei is a technology company with over 500 million users from 120 different countries around the world. In 2018, it made 200 million phone sales. Now there are more than 53,000 Huawei branded shops and 3,500 centers in the World. According to map, it is being seen that there is a neutral status to sales of Huawei in Ukraine in 2018. 17
LEAD9 Mobile Marketing agency and Kiev International Institute of Sociology collectively conducted a research showing;
• 45% of adults in Ukraine use smartphones
• 91% of pooled participants aged 18-30 use smartphones
• From 2016-2018, the share of smartphone used in Ukraine has increased by 26% and expected to increase by 70% by 2020
The increase of smartphone users is due to the development of mobile internet and the presence of cheap phones. Since more than 90% of teenagers are using smartphones now, and consider a smartphone normally would not upgrade his phone in a relatively short term. 18
For 5G technology, it is predicted that the full deployment of the first 5G-networks in Ukraine will be in 202019, but the large-scale connection of the newest networks are able to being built no earlier than 2025. However, several world telecom operators have announced their readiness to launch 5G.20
The above mentioned survey data and graphs are examined:
In Ukraine, it seems that the people in Ukraine will start using 5G technology in 2020 and there is no any agreement announced on 5G technology or technological infrastructure with Huawei for now.
In Ukraine, Huawei phone sales were ranked 4th after Samsung, Apple and Xiaomi, but their sales increased steadily over the last one year. It is seen that the use of smart phones has become more widespread and has increased in direct proportion to the young population.
People prefer cheap smartphones, and Xiaomi phones are in competition with Samsung and Apple as a market share. Huawei is not expected to compete with other brands in its short-term, but it is not expected that the US restrictions will decrease its sales according to the consumer trend.