The Huawei Saga: There’s Never A Win-Win In A Trade War
Osama Rizvi in this article details how the recent Huawei conundrum is a reflection of the ongoing trade war between the United States and China. He argues that a ban on Huawei will certainly damage the tech giant’s sales in Europe and other parts of the world but a reciprocal ban on iPhones in China will make Apple lose 30 percent of its sales too.
Many have termed the recent chain of events involving Huawei as the beginning of a “tech cold war”. The observation certainly captures the mood of the contemporary corporate world. Consider this a spillage of trade war; as Trump resolves to use all the weapons in his diplomatic arsenal to steer the impeding trade deal in US’ favor. But things might not work out as desired.
Trump blacklisted Chinese tech-giant, Huawei, by invoking national security, upholding the accusations of espionage and intellectual property theft. The company was added in what is called the Entity List – “a set of companies that American firms cannot sell technology to without first obtaining a license from the US government”. It is noteworthy to mention that Huawei is a major buyer of computer chips from US; it bought $11bn worth of chips from American firms last year.
We can already see why trade war is never a win-win for the countries involved.
Goldman Sachs recently reported that if China bans Iphone in their country the company’s sale can drop by 30 percent. The share price forecast of Apple has already been cut by HSBC to $174 from $180. An analysis from Credit Suisse says that for every 5 percent drop in sales in China, Apple’s earnings per share would fall by 15 percent.
Such is the beauty, and for many a flaw, of a globalized world.
Coming back to the ongoing strife between the economic giants there seems to be no possibility of an agreement, at least in the near future.
Trump is adamant that the only trade deal he is going to accept is going to be the one that is advantageous for US. But in this regard his latest move has been termed as a ‘strategic miscalculation’. Analysts believe that blacklisting Huawei would only expedite improvement in China’s technological expertise or as an article in Bloomberg puts it “technological independence”.
China will ramp up its effort to build its own play-store, applications and an upgraded operating system. They have already revealed, Hongmeng, Huawei’s very own OS and the fact that they have been working on it from 2012 points towards their commitment. Experts opine that the company can switch from Android in six months.
However, it does not mean that Huawei will come out of this unscathed. Blacklisting Huawei also means that other US tech firms such as Google will no longer be extending their services, such as Google Playstores, YouTube and Gmail. While it will be business as usual in China as they already have alternatives for the major applications, it is certainly going to hurt Huawei’s sales outside the country such as Europe – company’s second largest market. Also, as chip-makes such as Qualcomm stop selling their products to Huawei the company will face a hard time bringing new products to the market.
But many are still hopeful and look forward to the birth of Chinese Operating System which, with time, will be at par with its Western counterparts.
Also, as observed above, US firms will not be on the winning side either. Gregor Berkowitz, a seasoned tech-consultant, says that US and other firms might face collateral damage as a result of the current ban.
As of now there is a temporary relief in place for 90 days while business between Huawei and other tech firms will be as it was before. But these 90 days are very important as Trump and Xi will meet by the end of next month on the sidelines of G20 to discuss trade war. Trump has recently said that he can also include Huawei, in some possible way, as a part of the trade deal. But the way the talks have progressed so far (tariffs on remaining $325bn of Chinese goods are being prepared) the possibility of a solution doesn’t seem anywhere near.
We will have to wait and see as both sides jostle to “out-tech” each other. But there will be no winners; if the ban will hurt Huawei, US tech firms won’t come out of this unharmed either.