US/Huawei saga enters the realm of ‘who knows what going on?’

The US Commerce Department has held a press conference to announce some companies can now trade with Huawei, but no-one knows who, how, what or where.

Speaking at the annual department conference in Washington, Commerce Secretary Wilbur Ross has said US companies can now start trading with Huawei, assuming they have had a license approved by his department, which is unlikely to happen, while little guidance has been offered to the criteria on how decisions will be made.

The only clue which we have so far is a reference to ‘national security’. Huawei and its affiliates remain on the ‘Entity List’, though US firms are allowed to do business if it doesn’t compromise national security. What that actually means is anyone’s guess.

The move from the US Commerce Department follows comments from President Donald Trump at the G20 Summit in Japan. In order to get trade talks back on track, Chinese President Xi Jinping insisted the aggression towards Huawei be ended. This seems to be somewhat of a compromise with a nod to the likely domestic opposition the White House will face.

Immediately after Trump signalled his intentions to let Huawei off the hook, two of the President’s biggest opponents, from opposite sides of the aisle, voiced their disapproval. Republican Senator Marco Rubio, who has Presidential ambitions, and Democrat Senator Chuck Schumer, who consistently undermines the President, both suggested they were going to be hurdles in the pursuit of Huawei relief.

For the moment, the language is still very negative. US suppliers can apply to work with Huawei, but applications will be looked at with refusal at the front of mind. There will have to be proof such business would not compromise security, though it is highly likely the vast majority will be turned down.

“To implement the president’s G20 summit directive two weeks ago, Commerce will issue licenses where there is no threat to US national security,” said Ross during the conference.

“Within those confines, we will try to make sure that we don’t just transfer revenue from the US to foreign firms.”

This seems to be an attempt to keep all parties involved happy. In China, it might look like the White House is trying to relieve pressure on Huawei, while in Congress, Trump seems to be attempting to give the impression he is protecting national security. However, it does paint an incredibly confusing picture.

Ross’ statements seem to ignore the fact that supply chains are now globalised, and it is almost impossible to do business without working beyond domestic shores. Few firms will have any concrete understanding to where they stand either.

For those who have lobbied against the ban, its difficult to see whether this is a win or not. Yes, it is somewhat of a concession, but it might not mean anything ultimately. If the US Commerce Department is going to be stubborn, few suppliers might receive the golden ticket to do business with Huawei. Only time will tell whether this is anything more than ego stroking from Ross.

ZTE’s export ban is set to be lifted

The US Commerce Department has signed an agreement with to lift the export ban on ZTE.

In keeping with the style of the current US administration the move was communicated via a tweet.

In practice this will complete the outstanding part of the $1.4 billion penalty agreement ZTE reached with the Department in June, coming on top of the $1 billion it already paid. In addition, the original seven-year export ban will be converted into a ten-year suspended ban, and ZTE will still need to hire an external compliance monitor appointed by the Department.

The price ZTE has paid to get here, in addition to the monetary loss, includes a wholesale change of its Board and its management, the loss of half of its market value, damage to its brand, and a lasting suspicion from its customers. They will look for potential alternative suppliers if they have not already done so.

With the ban lifted, ZTE will be able to resume its global business using American technologies and components, in particular the microchips. This will be good news for companies like Qualcomm, Intel, TI, Broadcom among others, and even better news for the smaller suppliers who have relied more heavily on ZTE. Indirectly, as ZTE is one of the major Android handset makers, lifting the ban will also be a positive to Google.

However, not all is rosy for ZTE yet, especially its fortune in the US market. The FCC named ZTE in its NPRM as one of the suspect vendors whose equipment and services could pose threat to national security, therefore limiting the prospect of ZTE expanding its infrastructure business in the US.

Going further up the political hierarchy, the bi-partisan “National Defence Authorisation Act” passed in the Senate included an amendment aiming to reverse the “goodwill” extended by President Trump to China to save ZTE from death. The bill will be discussed with the House for a comprise version. Chuck Schumer, the Senate Minority Leader, was clearly unhappy with the latest agreement:

With the uncertainties in the FCC and the Congress hanging over its head, and seen against the backdrop of the US-China trade dispute, instead of being the beginning of the end of the ZTE saga, as its lawyer claimed, this agreement is more like the end of the beginning. How the rest of the chapters will pan out remain to be seen. In short term, however, the agreement is a boost to the market. ZTE’s share price rose by 25% on the Hong Kong Stock Exchange.