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U.S. Tech Suppliers, Including Google, Restrict Dealings With Huawei After Trump Order

The Chinese technology giant Huawei on Monday began to feel the painful ripple effects of a Trump administration order that effectively bars American firms from selling components and software to the company, ramping up a cold war between the two countries over technology and trade.

The fallout began when Google cut off support to Huawei in recent days for many Android hardware and software services, according to the companies. The move, a response to the Trump administration's order last week, could hamstring Huawei by restricting its access to future versions of the Android operating system. Google will also limit access to popular applications like Maps, Gmail and the Google Play store in new handsets made by Huawei, the world's second-largest smartphone maker, behind Samsung.

But Huawei was given a temporary reprieve from Google's abrupt pullback by the Commerce Department, which last week had added Huawei to a list of companies deemed a national security risk, effectively preventing it from buying or licensing American parts and technology without special permission from Washington. Late Monday afternoon, the department said in a notice posted to the Federal Register that it would grant 90-day permissions for transactions necessary to maintain and support existing cellular networks and handsets.

Google said that it would work with Huawei during the 90 days to provide security updates to its Android operating system, but that it planned to abide by the Commerce Department's orders when the period expired.

Chip makers have also started stepping back from dealings with the Chinese firm. The German supplier Infineon said on Monday that it would restrict its business with Huawei. And Intel and Qualcomm, two of the world's largest chip makers, have told employees to cease working with the Chinese company until further notice, according to Bloomberg.

The mass flight of American technology companies from Huawei, one of China's proudest corporate champions, is a stark escalation in the high-tech battle that has simmered between the two powers for years.

China has long prevented many American internet giants from providing services within its borders, and it has placed tight strictures on how other American technology firms can operate. The enormous commercial potential of the Chinese market made it hard for the companies to put up much of a fight as Beijing declared, in effect, that their business interests were subservient to China's national security interests.

Now, the United States government is showing that it, too, has ways of getting foreign companies to play by its rules in the name of upholding national security. Its asset is not a giant, untapped market for technology products, but the technology itself - the know-how and capabilities without which Huawei would not have achieved so much of its success.

"We have made substantial contributions to the development and growth of Android around the world," Huawei said in a statement about Google's pullback. "As one of Android's key global partners, we have worked closely with their open-source platform to develop an ecosystem that has benefited both users and the industry."

The company's decision to halt work with Huawei was earlier reported by Reuters. Intel declined to comment, and Qualcomm did not respond to requests for comment.

Major American wireless companies have effectively been blocked from buying Huawei's telecommunications equipment for years, but the company's business has grown rapidly in Africa, Asia and Europe, where its affordable prices have been embraced by consumers and by phone companies that use its antennas, base stations and other hardware to make wireless networks.

In recent months, the United States has stepped up its campaign against Huawei, which it has said poses a national security risk. American authorities have worked to persuade allies like Britain and Germany to block the use of Huawei telecommunications equipment. But the efforts have had limited success, as many countries rely on Huawei gear in the race to build up fifth generation, or 5G, wireless communication networks.

Last week, President Trump issued a ban prohibiting American telecommunications firms from installing foreign-made equipment that could threaten national security. The order instructed the commerce secretary, Wilbur Ross, to stop transactions "posing an unacceptable risk." Although the order did not single out specific companies, it was widely believed to be directed at Huawei and others in China's tech sector.

The actions put pressure on American allies that have so far resisted urging from the Trump administration to issue complete bans against Huawei. James Lewis, a senior vice president and the director of the technology policy program at the Center for Strategic and International Studies, said that most European countries would prefer a softer approach.

"I don't think Europeans realize the extent of the strength of feelings in the U.S. that we need to block Huawei," Mr. Lewis, a former official at the State and Commerce Departments, said.

China has not said whether it plans to retaliate against the United States in response to Mr. Trump's move. On Monday, shares in Qualcomm, Infineon, Intel and Alphabet, Google's parent, all fell. Apple, which depends on the Chinese market for a large portion of its revenue, also dropped amid concerns that the tech battle between the two powers made it a potential target.

The Chinese government also suggested the possibility of a legal challenge against the Trump administration order on Monday. Asked about Google's decision at a regularly scheduled news briefing on Monday, Lu Kang, a spokesman for the Ministry of Foreign Affairs, said, "China encourages Chinese companies to take up legal weapons to defend their own legitimate rights."

For now, the flight of tech suppliers will test the durability of Huawei's business, which has long depended on access to products from American companies. It is now on the verge of reliving a run-in that another Chinese tech company, ZTE, had with Washington not long ago. To Chinese leaders and business executives, that episode remains a vivid cautionary tale of the United States government's ability to weaponize American companies' technological superiority for political ends.

That incident also began with a listing by the Commerce Department. ZTE, which competes with Huawei in telecom equipment, was determined to have sold American-origin goods to Iran. The department added the company to the entity list in 2016, putting a cloud over its future.

In time, ZTE negotiated a lighter sentence with the department, and its business with American suppliers was allowed to continue unrestricted. But last spring, commerce officials said the company had not disciplined the employees responsible for the transactions that had violated American export controls - and that the company had lied to American authorities about it.

Washington cut ZTE off from all purchases of American components and technology. Within weeks, the company was at death's door. Production stopped. Workers idled in their dorms.

Huawei is a much larger company than ZTE, with a bigger global footprint. If it is brought to its knees as ZTE was last year, then the consequences could be devastating for smartphone users and mobile networks across a far wider stretch of the planet.

If the Commerce Department's order goes into full effect as currently stipulated, Google's change will apply to new Huawei devices and future versions of the Android operating system. Security and feature updates will still be available for Huawei users with Google apps already loaded on their devices.

By adhering to the Commerce Department's order, Google would undercut ties with an important and fast-growing partner. Huawei's smartphone sales in the year's first quarter grew 50 percent compared with the same period a year earlier, even as the broader handset market stagnated, according to the market research firm IDC. Google gets revenue from ads that are shown with the apps carried on Huawei devices.

[Source: By Adam Satariano, Raymond Zhong and Daisuke Wakabayashi, The New York Times, 20May19]

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