In the media frenzy surrounding Special Counsel Mueller rare statement slamming Buzzfeed’s “report” that Trump had instructed his former lawyer Michael Cohen to lie to Congress, an important development in the US-China saga quietly snuck under the radar. Because one day after the WSJ reported a since denied story that the US, or rather Steven Mnuchin, is seeking to lift China tariffs, and on the same day that Bloomberg reported China had offered a path to slash its US trade surplus by importing up to $1 trillion more in US goods, Bloomberg also reported late in the day, that the Trump administration is preparing an executive order that would significantly restrict Chinese state-owned telecom companies from operating in the U.S. over national security concerns, the latest escalation in the main issue at the heart of the US-China feud, namely China’s ongoing technological theft, pardon, “transfer.”
While the order, which hasn’t yet been presented to the president, does not explicitly mention Chinese telecom giants such as Huawei Technologies or ZTE by name, and would not outright ban U.S. sales by the firms, it would give greater authority to the Commerce Department to review products and purchases by companies connected to “adversarial countries”, including China, reported Bloomberg citing “people familiar with the matter.”
The underlying tension is familiar to everyone who has followed the recent arrest of Huawei’s CFO in Canada, who is pending extradition to the US: Huawei has been pushing to take a global leadership position in 5G, but many American and foreign officials suspect the company’s products are being used by Beijing to spy on Western governments and companies (despite the rare denial by its reclusive founder Ren Zhengfei who said he would “never do anything to harm any country”). Both Huawei and ZTE have also been targeted by the U.S. for alleged schemes to dodge American sanctions on Iran.
To be sure, the report is hardly a surprise: after all rumors have abounded for months that the Trump administration would target Chinese telecom companies with an executive order to ban their U.S. sales. Last December, Reuters reported in December that Trump would consider an order declaring a national emergency related to the firms.
However, what is notable is the timing, which comes just as various reports suggest a renewed push for a ceasefire in the trade war with China and which in turn helped send the Dow Jones some 500 points higher in just the past two days.
So while it remains to be seen if this particular report will lead to anything more actionable, Bloomberg reports that some U.S. companies are already preparing for a possible executive order by the Trump administration in the next few weeks that could inflict serious harm on Huawei, perhaps making it impossible for the company to operate, according to James Mulvenon, a China specialist who works for defense-contractor SOS International.
“The maximal version is that they would have a death sentence for Huawei like they threatened to do to ZTE,” which of course is the Chinese network-equipment supplier that President Trump spared last year from a threatened cutoff from crucial U.S. parts which nearly led to a collapse in one of China’s largest companies. “The minimal version is that Huawei will be banned from sales in the U.S.”
Citing another “person familiar”, Bloomberg said that an order could be presented to Trump as soon as next month. The order the person outlined would give the Commerce Department discretion to decide which companies and which products to scrutinize.
The preparation of the order comes against the backdrop of Trump’s trade war with Beijing. But national security, not economic concerns, are driving the discussion, the person said.
Reached by Bloomberg, a spokesman for the White House National Security Council wouldn’t confirm whether an order is in the works, but did state that “the United States is working across government and with our allies and like-minded partners to mitigate risk in the deployment of 5G and other communications infrastructure.” In the statement, spokesman Garrett Marquis also said that “communications networks form the backbone of our society and underpin every aspect of modern life. The United States will ensure that our networks are secure and reliable.”
It is unclear if and when Trump will actually pull the plug; what is absolutely certain is that when he does, not only will diplomatic tensions between Washington and Beijing escalate to a new level, but any hopes for a swift resolution in the trade war between the US and China will be crushed (along with the market).