US suppliers are still staring into the abyss as reports emerge the US Government has halted its special-permissions programme to work with Huawei due to Chinese retaliation.
According to Bloomberg, applications for special-licenses to continue supplying Huawei with US components, products and services are currently on hold, as the US Government ponders the latest counter-move from the Chinese Government; a halt to purchases of US agricultural equipment.
Just as there was a moment to celebrate, dozens of US firms are now allegedly back to square one.
The licenses themselves have proved to be popular, with Commerce Secretary Wilbur Ross suggesting his department had received 50 applications, as of last week. This is not to say 50 companies will be given permission, the US Government has hinted the majority will be turned down, though it is back to purgatory the suppliers go.
Entry onto the Entity List has caused a significant headache for numerous parties around the world. Not only do the US suppliers have to figure out where they are going to recapture lost revenues, but potential customers in other markets have to assess the quality and resilience of the products following a disruption to the supply-chain.
Last month, Ross announced the Commerce Department would start accepting applications for licenses to receive permission to trade with Huawei. That said, no advice was offered on the criteria said applications would be measured against, aside from an ill-defined reference to national security.
What is also worth noting is the mentality of those considering the applications. Refusal would be front of mind, unless the application was compelling enough.
However, this has all been turned upside-down.
We might have been expecting retaliation from Chinese Government, though few would have assumed the White House would snap the olive branch extended to US suppliers who are losing a major customer. This is allegedly what is happening today.
This tit-for-tat trade battle has now entered the realms of finger pointing. Trump has suggested he would loosen controls on Huawei if China increased purchases of US agricultural equipment. China has stopped purchases because the noose is still firm grasped, but the US is not willing to let go because China has not ramped up its purchases.
It’s a Mexican stand-off with private companies, in both countries, feeling the pain of government posturing and flexing, as egos are massaged by enablers and yes-men looking to gain favour with short-sighted and morally-bankrupt politicians.
Looking at the collateral damage, numerous US technology companies saw share price decline following the rumours. Skyworks Solutions, where 10% of revenues are attributable to Huawei, recently reported quarterly earnings with a $127 million hole in the spreadsheets. Total revenues were 16% down in comparison to the same period of 2018, prior to the Huawei headache.
Interestingly enough, there are several companies who have publicly stated they have applied for licences. Micron and Xilinx, two US semiconductor companies, have said the license is key as their role in the supply chain can be replaced by a foreign alternative.
If the rhetoric of the trade-war is to help US companies in the long-run, the very opposite is being done with these two organisations; once they are out of the supply chain, it will be very difficult to get back in. Most likely the only way will be to renegotiate contracts at less favourable rates to convince Huawei to ditch newly found alternatives.
Google is another which will pray for the end of the trade-war and ban on supplying Huawei due to the emergence of Harmony OS, the Chinese vendors in-house OS which could be applied to smartphones and smart devices. The emergence of another contender in the OS segment could lead to Google losing real-estate on millions (if not billions) of devices for its products such as Google Play, Chrome and Google Maps.
Right now, it is difficult to see this trade-war as anything more than a battle of egos. It was supposed to counter nefarious activities of the Chinese Government, creating a platform for US companies to thrive. However, with alternatives being sought and created, the temporary damage could turn permanent very quickly.
US suppliers do not want to permanently lose a lucrative position in the supply chain of one of the worlds’ fastest growing technology companies, though that is the reality some will have to face.