May 20, 2019 / 8:16 PM / 3 months ago

Breakingviews - Donald Trump may yet play Huawei-saving wild card

Signage is seen at the Huawei offices in Reading, Britain, May 2, 2019. REUTERS/Toby Melville

SAN FRANCISCO (Reuters Breakingviews) - Donald Trump’s unpredictability could yet play in Huawei Technologies’ favor. The Chinese telecommunications firm has effectively been cut off from U.S. suppliers, from chipmaker Qualcomm to Alphabet’s Google. But that happened to Huawei rival ZTE too, and the president relented. Though it’s more of a stretch, a similar reprieve for Huawei can’t be ruled out.

Last week, Washington’s Commerce Department issued an order requiring companies that sell products overseas to Huawei to obtain a special license. Qualcomm, Infineon Technologies and Google are among the companies that suspended shipments or cut off access to certain products. The impact on the company’s business could be devastating, especially outside China where an inability to use Google’s Android operating system would hit smartphone sales hard.

U.S. authorities issued a similar ban on listed ZTE in 2018. The company’s shares lost more than half their value as investors took on board the impact. But then Trump reversed the ban in a bid to ease trade tensions. Under a deal hammered out after he spoke with Chinese counterpart Xi Jinping, ZTE instead had to pay a $1 billion penalty and replace its board.

The reversal angered some lawmakers, but they couldn’t muster enough support to change it, and ZTE’s stock eventually recovered most of the lost ground.

Privately held Huawei is a much bigger target. Intelligence officials have warned for years about security risks with equipment made by the company, which recorded around $100 billion of sales in 2018. The crackdown has broad bipartisan support. That will make it harder for Trump to overrule the ban.

But he is not always fully on board with his hard-line aides. The intensifying trade war with China has rattled markets, which Trump watches closely. And, as with ZTE, some U.S. companies that sell products to Huawei will suffer. The shares of chipmakers Qualcomm and Broadcom, for example, were both down about 6% in afternoon trade on Monday. With an eye on the 2020 presidential election, such factors could play into his thinking.

He would risk the ire of Congress, but lawmakers would need a veto-proof majority to reinstate the ban if Trump were to lift it. It’s one more wild card in the president’s hand.

Breakingviews

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