Five Things to Know About the New U.S. Restrictions on Huawei

The U.S. government made a surprise announcement on Monday of new rules that restrict the sale of microchips and other technology to Huawei Technologies Co. Ltd by practically any chipmaker in the world.

Without vital foreign chips, Huawei, a symbol of China’s rapid technological advancement, now faces the question of whether it can survive.

Here are five things to know about how the latest U.S. strike against Huawei differs from past ones, and what's next.

Why does it matter?

To put it plainly, the latest rules announced Monday by the Department of Commerce effectively banned any company, anywhere in the world, from supplying chips to Huawei or any of its subsidiaries without first getting a license from the U.S. government. The U.S. can do this because of the power American companies have in the global semiconductor industry — practically no chipset on the planet can be made without U.S.-made equipment or software.

The new rules built on the ones announced in May, which only targeted companies like Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), which produce custom-made chips for Huawei based on the latter’s designs.

Under the May rules, Huawei could still procure chips that weren’t custom made from third-party firms like Taiwan’s MediaTek Inc. The new rules, which take effect Thursday, will close that loophole, ending all alternatives Huawei might have.

Chinese mainland-based chipmakers, such as TSMC’s rival Semiconductor Manufacturing International Corp., are not likely to come to Huawei’s rescue because they also heavily rely on U.S. technology, and are expected to be cautious to avoid drawing Washington’s ire and ending up the target of similar sanctions.

Can Huawei do anything about it?

Going forward, Huawei could take legal action in the U.S. by arguing that the Department of Commerce’s rules violate U.S. law. But such measures could involve a lengthy process without any guarantee of success — its previous legal challenges against the U.S. government have not succeeded.

The best hope for Huawei is to wait until November’s general election for a possible change in the U.S. administration. Although few people expect a U-turn in the U.S.’ current hawkish policy on China, a Biden administration would likely have a more predictable China policy and Huawei might be able to convince it to ease sanctions.

How long will Huawei’s chip stockpiles last?

It is no secret that Huawei has over the years resorted to the strategy of stockpiling products, likely in anticipation of U.S. sanctions. Earlier this year, the company announced that its cache of chips and other components was worth 167.4 billion yuan ($23.5 billion) in 2019, up 73.4% from the previous year.

Huawei has not revealed how much of its stockpile is left. Most analysts forecast that its stock of chips will run out early next year.

How have Huawei and the Chinese government reacted?

Huawei has not publicly responded to the latest U.S. sanctions announced on Monday. After the company was first targeted in May 2019 when it was placed onto the department’s “Entity List,” it launched a public relations frenzy that brought out reclusive Chairman Ren Zhengfei to do interviews with global media.

The company had repeatedly denied U.S. accusations that its products pose a threat to a country’s national security by containing “backdoors” that allow the Chinese government to eavesdrop.

Earlier this year, Huawei’s Rotating Chairman Eric Xu warned that the Chinese government will not let Huawei “be slaughtered on a chopping board” and said he expected Beijing will also take retaliatory measures.

State-backed newspaper Global Times reported earlier that Beijing is preparing to target U.S. firms including Apple Inc., Qualcomm Inc. and Boeing Co.

Still, Beijing’s reaction has until now been limited to only a verbal defense. Responding to the latest U.S. rules on Huawei, Zhao Lijian, a foreign ministry spokesperson, said China “firmly opposes” the U.S. move.

Zhao accused the U.S. of abusing “state power” and of using national security as an excuse to target Chinese companies.

What’s next?

Huawei is just one of the high-profile Chinese tech companies that have found themselves in the crossfire of an increasing hostile relationship between Beijing and Washington. Others that have caught the ire of the U.S. government include ByteDance Ltd. and social media giant Tencent Holdings Ltd.

U.S. President Donald Trump had given ByteDance until early November to sell its short video app TikTok’s U.S. operations. The U.S. president also signed an executive order banning Tencent’s ubiquitous WeChat app by late September.

Contact reporter Mo Yelin (yelinmo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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