Amidst the US-China Trade War, Huawei, the Chinese gadget-maker have just suffered the biggest blow to its worldwide business. For more than a year now, President Trump’s administration has been head-to-head against China’s integration of communist interests along with its economic policies. As per President Trump, China’s communism-inspired economic policies have “killed” free economics, which is not suitable for international capitalism. After accusations, debate, and imposing tariffs against each other, the United Staes administration make the first big decision of this trade war, Huawei is being blacklisted internationally by President Trump, and guess what, Google obliges to his statement firsthand. It’s an irony Google is abiding by laws, as it’s not something company is known for. This would mean Google will suspend all sorts of business ties with Huawei. Now, since Huawei has lost business with Google, will it be just mobile phone business being affected for a while, or this the beginning of an open economic war between the two most powerful economies in the world?
Trump Blacklists Huawei and Google Responds by Suspending Business Terms
Yesterday, Google’s parent company Alphabet Inc. announced that it would suspend business relations with Huawei until further notice. This decision came after Trump administration blacklisted Huawei on the context that the Chinese phone maker has been helping intelligence services in espionage, which, in turn, has caused US-China trade deficits. This would mean that Google wouldn’t allow Huawei users to update Android version on their mobile phones, and that too at the time when Android Q is about to launch worldwide for all smartphone users. Though Huawei would be able to have access to Android versions available in open source via Android Open Source Project (AOSP), but would not be eligible to provide any kind of licensed service from Google to its users. This may also include blockage of Chrome usage in Huawei phones. Since Huawei would be internationally blacklisted, it would affect Huawei’s market in every market segment it operates in, except China, where most of the Google is banned. The intensity of damage to Huawei’s business can’t be decided as of yet, but given its strong position in the market, it may be drastic.
How Huawei’s Business Position would be Affected?
Huawei hs led the Chinese economy to a significant boost by positioning itself among the top phone makers in the world. Under its brand Honor, Huawei has shown massive growth in terms of market capitalization and revenue, even in the worst case market scenarios. Last year, Huawei also surpassed Apple in the second quarter of 2018, despite a 1.2% decline in the overall smartphone market. Even in the previous quarter of the fiscal year 2018, Huawei stood high as the market declined to plunge other major players at lower positions.
Honor is a critical factor in this rise. An online-only sales model has proved to be highly effective for the company. The internet-powered business model has proven favorable in communicating with the audiences, whereas, the competitive pricing model of Huawei for Honor phones have been commendable among users. Offering premium features at a very reasonable price point has made Huawei a leading mobile phone manufacturer and seller, especially in the South-East Asian market segments.
With the US internationally blacklisting Huawei, there are now imminent dangers that would lower down the market share of the company by a considerable ratio. This abrupt decision may cause the company to lose its consumers as who’d buy an android phone without Google apps, right? The company was selling more than a billion units every year for the past couple of years, but with this international blacklisting, Huawei future plans of business expansion and its race to be among the top-three phone makers are in the dark.
Impact on Consumers
The consumers using Android-powered supported Huawei devices would continue to get Google Play Support and Google Play app updates. But, for the new Huawei users, licensed apps from Google such as Gmail, YouTube, and Chrome would purely disappear and would not be accessed via Huawei devices at all, until this dispute is settled. Android phones without Google apps are next to useless, and consumers will definitely part ways with Huawei over this issue. Gmail and YouTube are the most accessed Google platforms across the globe, and any phone maker not offering these two applications cannot succeed in the smartphone market. If you are an Android user, will you ever use a phone without Gmail in it?
Huawei’s US Clients Maybe at Setback
Huawei is not just a phone maker but is involved in a large communications business. This includes semiconductor chips, cloud services, enterprise intelligence, modems, network integration, set-top boxes, and wireless gateways. Now, several American companies offer the same products; however, small business owners, as well as people hailing from lower economic sections, can’t afford them. Huawei has been one of the most reliable providers of comparatively cheaper telecommunication devices. Firstly, these people are going to face hard times replacing their equipment. And then there is a potential of significant retaliation from Huawei. The company may increase the prices of its products for American consumers. This would lead consumers and business owners who prefer to purchase Huawei’s economic variant of internet modems and mobile phones to potential financial constraints due to additional expenditures. How US-based carriers and consumers would now deal with changing the installed pieces of equipment would be only comprehended after the practical effects of this incident start showing up in the market.
What about the 5G War?
Isn’t that a coincidence that America blacklisted Huawei at a time when it is to roll out its 5G networks in Europe? It’s quite unusual as America previously asked Germany to the same. America is racing to be the first nation to roll-out 5G networks, and this has been clear for a long time now. But Huawei is steps ahead of doing that in Europe. Luckily for Huawei, this ban is not going to halt its 5G installations in Europe. It has been made clear by the authorities that no other competitors or American counterparts have a competing product against Huawei, and thus, they’re going ahead with the Chinese this time. Maybe, this blow to Huawei didn’t work that well with US authorities. What do you say?
Huawei being blacklisted is definitely not going to be pleasant situation either for the company and for the long-term Huawei product users. But what led to this abrupt decision of Trump administration and how Huawei landed up in this mess?
Made In China 2025
This was probably the beginning of what we witness today as the biggest inter-state trade war. China has been the haven of industrial and manufacturing units for the biggest of the conglomerates across the globe. Almost every organization hailing from first-world nations like the United States and Britain have resorted to China as their main location for conducting manufacturing operations due to the high presence of laborer and factory workers, that also comes comparatively cheap. However, as per the Made in China 2025 initiative, the Chinese administration has suggested that the nation would move away from its status as the “world factory” and would focus on more nation-focused development, highlighting ten key industries including Automotive, IT, Robotics, Medicine, Pharmaceuticals, Energy, and Transportation.
But this decision has not gone well with China’s best trading partner. The States.
The United States’ Disapproval of Chinese Economic Policies
Trump administration has considered China’s 2025 initiative as a threat to the States economy and to its technological dominance.
Yes, China does allow many international companies to have their manufacturing units established in the nation, but that’s not that simple. If a company wish to manufacture its products in China or even do business in China, Chinese economic reforms are such that they are forced to form alliances with Chinese companies to gain access to the location. For example, Apple phones are manufactured in China under Foxconn, a Taiwanese manufacturing company recognized in China. Apple just can’t open up factories like that there. This is how technology is transferred across Chinese borders in the nation’s markets. This way, China can control foreign businesses and maintain its monopoly in trade regulations. Until now, this was acceptable as everyone was happily making money; however, China’ s announcement of Made In China 2025 has shooked vaults of the US government. If China is to built technology focused on national development, this would mean de-prioritizing American technological businesses and eventually surpassing in term of manufactured products concerning different economic sectors. The States have claimed that after years of controlling international trade relations, China now seems to disavow its business terms with America and wish to forcefully impose “communist capitalization of international economy.”
So, how did the US responded to it?
The United States Impose Tariffs on Chinese Goods
After Made in China 2025 was announced, the American government responded with increasing tariff rates on solar panels, which are manufactured in China more than anywhere in the world. In retaliation, the Chinese placed extra tariffs on washers, over the import of the first 1.2 million units. America imported more than $400 million of washers throughout the year. Since then, the Ministry of Commerce in China, and The Office of US Trade Representatives has been on a tariff war. The tariff rates are increased by both nations on each other’s goods, thus deepening the trade deficit between the US and China. The tariffs have been imposed on almost all sorts of products, including metal, food, fuels, medical technology, pharmaceuticals, and even electronic gadgets. The tariff rates have been amended in last one-year, and the trade deficits have been halted once for talks and negotiations but to no avail.
When asked for an explanation, Trump’s administration had a huge reason ready.
America Accuses Huawei of Intellectual Property Theft
The US government has claimed that the gadgets manufactured by Huawei are exploited by the Chinese for espionage and IP theft. The claims suggest that Huawei has helped Chinese intelligence stole technological secrets, infiltrate communication between officials, and even use product copyrights to serve Chinese economic and political interests. Accusations also included the planting of bugs and viruses through Huawei’s tech in US industries, offices, and educational institutions. US authorities suggested that these coordinated infiltration attempts have cost economic losses to America and the matter would be strictly investigated ahead at all judicial levels.
The investigative decision finally came out, and it was Huawei who received the fatal blow. The company may lose its stronghold in the market if this blacklisting period is stretched for long. And it’s not going to be easy for users to come off Huawei. At business levels, changing Huawei equipment would cost millions alone.
It’s unsure as for what would be the next step. Neither Huawei or the Chinese government has come forward for an official statement. But there surely would be a retaliation. This decision is to escalate and not end the US-China trade war, and it seems this is going to last longer than expected. Following Google, US companies like Intel has also stopped hardware support for Huawei. Do you think this ban on business operations against a major Chinese conglomerate has gone beyond tariff issues?