The United States’ government decision to ban Huawei from involvement in the American communications network will be enforced in February 2020, formalizing President Trump’s signature on the Defense Authorization Act in August 2018. The Chinese tech giant was granted temporary reprieves while the logistics of the ban were worked out, but Huawei products will be unusable in the US from this month onwards.
The US government has chosen to completely prohibit the presence of Huawei on American soil out of security fears, citing concerns that Huawei could access and share sensitive information on behalf of the Chinese authorities. Huawei have been firm in their denial of such a possibility, but the US government is taking no chances given the unstable trade relations between the two countries in recent months.
Given the prominence of smartphones in everyday life, it is no surprise that the Huawei situation has gained such traction in the media. Huawei is at the center of the rollout of 5G networks in other nations, but the US is remaining firm on its skepticism of the Chinese telecommunications provider.
The end of a trade dispute?
The Huawei discussion has taken place to a backdrop of fractious trade negotiations between the American and Chinese governments. A dispute between two of the strongest economic powers inevitably has consequences throughout the world, so all nations will be looking optimistically towards the January deal signed by the two governments as evidence that this dispute is reaching an end.
Import taxes have been at the heart of the conflict, with both the US and China levying substantial tariffs on goods traded between the two countries. This has had ripple effects on other countries looking to trade with both nations, while investors have found it difficult during a period rife with uncertainty. It is that lack of clarity which makes investors most uncomfortable, as markets are at their most volatile when economic disputes are ongoing.
The January deal indicates that traders should soon be able to operate with greater market certainty. The Phase One trade deal sees China commit to the purchase of an additional $200 billion worth of American products, although the elevated trade tariffs remain in place for the Phase Two trade talks. However, the Phase One deal is an important step towards a more harmonious economic partnership.
The effect on the markets
The Chinese yuan has been weak throughout the trade dispute, with some critics interpreting this as a conscious decision by the government to counteract the effects of higher tariffs on the import of Chinese goods. However, the yuan displayed a resurgence in the latter months of 2019, a direct consequence of more positive noises coming from the trade negotiations. There is also little incentive for an intentional devaluation of the yuan while trade talks are progressing more positively.
The Huawei situation also has been treated as an extension of the trade tensions. While its conclusion may not be a positive one for China, investors everywhere will appreciate the certainty that arrives with the enactment of that ban. This improved stability will have American traders considering the USD/CNY currency pair when looking at options with the best US forex brokers, something that many investors will have avoided while the relations between the two countries were at their most volatile.
A caveat is that the coronavirus scare inevitably affected the Chinese economy at the start of 2020, therefore clouding the true effect of the trade deal and the Huawei ban on the value of the currency. Nevertheless, it appears that the US and China are heading towards a more sustainable working relationship. Of course, some tension will be unavoidable, given that the consequences of the Huawei ban will be keenly felt on both sides throughout 2020.
The Huawei conundrum
There is still resentment within the Chinese authorities towards the fact that American officials didn’t consider Huawei to be trustworthy with sensitive information, given the international company’s strenuous denial to claims of potential subterfuge. There is also concern at Huawei about the vigorous manner with which US officials are encouraging their rivals to join in their boycott of the tech giant.
US officials sought to pressure their British counterparts into banning the Chinese company, but they were left disappointed when the United Kingdom opted to use Huawei as a supplier for part of their new 5G network. Huawei’s involvement is still attracting vocal opposition among some British politicians fearful for the integrity of the UK’s telecommunication networks, while there are also concerns that working with Huawei may undermine the UK’s close links with the US.
US Attorney General William Barr has also stated an openness to the government taking a controlling stake in the Finnish company Nokia and the Swedish company Ericsson. This novel strategy would be undertaken with the intention of rivaling Huawei’s position as a global leader in 5G networks.
The pressure on allies to avoid Huawei and mooted financial support of Huawei’s competitors are unlikely to sit well with the Chinese government, although that January trade deal does indicate that the two economic superpowers can find a cordial and mutually beneficial relationship.
Photos: top from Deposit Photos, 2nd from Pixabay