Technological tensions boil in Washington as the United States and China approach the commercial truce

WASHINGTON: The United States and China are about to declare a break in their commercial war by signing an initial pact in the White House this week, but a continuing battle for technology will surely keep relations between the two superpowers to the limit.

The immediate approach of the Trump administration is to tighten restrictions on Huawei Technologies Co., the giant Chinese telecommunications company that the White House and Congress consider a threat to national security. The Commerce Department recently sent new regulations to the Office of Administration and Budget that would largely eliminate a gap that allowed US companies to sell to Huawei from its overseas facilities, people familiar with the actions said.

Some lawmakers and national security experts say Huawei’s team would allow Chinese leaders to spy on Americans, which the company has regularly denied. A spokesman for Huawei did not immediately respond to a request for comments on possible restrictions.

Chinese hawks in Congress have also been pushing to limit sales to Huawei, and some are even asking Washington to subsidize US companies that work on next-generation 5G wireless technology, given how much Beijing has calmed down. to Huawei.

At the same time, a team of senior US officials, including the deputy national security adviser

Matt Pottinger,

Earlier this week, he put pressure on the United Kingdom to prevent local network operators from using Huawei equipment and other Chinese providers in their 5G networks. A British decision is expected shortly. More generally, the National Security Council asked the Commerce Department last week to suggest regulations to restrict sales of any US technology. UU. To China, according to the people who keep track of the initial discussions.

If all efforts bear fruit, almost any export of technology to Huawei in particular, and to China in general, would require export licenses. While Commerce could grant such licenses, US companies fear that their Chinese customers will turn to other suppliers, which makes them uncompetitive internationally. In 2018, approximately 36% of the revenue of the US semiconductor company. The US, or $ 75 billion, came from sales to China, estimates the Semiconductor Industry Association.

In an interview with The Wall Street Journal in November 2019, Huawei’s Ren Zhengfei discussed how his company would navigate the trade war, concerns about whether his team could be used to spy on Beijing and his road trip through the United States. Photo: Anthony Kwan for The Wall Street Journal

The technological offensive occurs when the two nations are calling for a truce in their two-year trade war. President Trump and Chinese Deputy Prime Minister Liu He are scheduled to sign an initial trade pact on Wednesday at the White House as broader negotiations continue. The agreement calls for an increase in Chinese purchases of US goods and services, greater protection in China of US intellectual property and the liberalization of the Chinese financial services market so that US companies can better compete there. In return, USA UU. It agreed to halve tariffs of $ 120 billion of Chinese products to 7.5% and suspend plans for other tariffs.

The twin efforts, taking strong measures against technology exports and reducing tariffs, represent different factions within the administration that compete for the president’s attention, government officials say. While there is broad agreement in the administration that China’s power must be controlled, there is no consensus among the various agencies, even within them, on the best approach.

Huawei under scrutiny

Some US lawmakers and national security experts say the Chinese telecommunications team would allow Beijing to spy on the Americans, which the company denies. Related reading:

National security officials also argue that the United States can put a lot of pressure on issues such as technology, human rights and Chinese military accumulation, even when the administration relaxes in the commercial struggle.

Meanwhile, Congress plays a more important role in export controls than in other commercial matters, and some legislators have a severe view of China. In 2018, Congress passed a law that requires the administration to present a list of emerging technologies whose sales to China and other countries would be limited.

“Most types of national security could worry less about soy,” he said.

Chris Krueger,

a strategist at Cowen & Co., referring to the provisions of the phase one agreement for additional purchases of agricultural goods, which has been a priority for Trump.

It is not clear if Trump would approve the changes that are sought. Secretary of the Treasury

Steven Mnuchin,

who has resisted efforts to use powerful Treasury sanctions to hamper Huawei, could also try to intervene for fear of altering general relations with China, say industry executives who have pressured him.

In Huawei, there is great frustration within the administration that a move in May to place the company on the blacklist of the Commerce Department, formally called the list of entities, did not have much effect on the company’s growth. At the end of December, Huawei reported that its revenues increased approximately 18% to a record $ 122 billion, partly because US companies discovered ways to continue supplying Huawei. Much of what American companies supply to Chinese telecommunications does not usually require a license.

If the chips and other components are produced abroad and contain less than 25% of content manufactured in the USA. UU. Subject to export restrictions, these products can be sent without a license to Huawei. The rule proposed by Commerce would reduce that percentage to 10% when it comes to Huawei, say people familiar with the discussions. Unqualified items would require an export license.

The designation of “provisional end” of the rule allows it to take effect without a formal comment period. The semiconductor industry has strongly lobbied to reverse that, including the meeting with the Secretary of Commerce

Wilbur Ross,

Shortly before Christmas, but without success.

“Because the United States does not have a monopoly on technology, companies in the US would yield an important market share and revenue to global competitors,” said SIA President

John Neuffer

He said in a December letter to Mr. Ross.

The rule would take effect once the State, Commerce, Defense and Energy departments sign. The industry could comment, but such appeals rarely have any impact. The United States could take to court or sanction any company that breaks the restrictions.

There are divisions within Commerce and Defense over the rule. Some in the Pentagon fear that change will harm American companies and their ability to innovate. Some Commerce officials have avoided even more stringent rule changes.

The National Security Council’s effort is far-reaching but at a preliminary stage, and its goal is China in general, not just Huawei, said the people who followed the discussions. NSC officials asked Commerce to consider different strategies, including the requirement that companies obtain export licenses for chips manufactured outside the US. UU. That make use of American technology. That would apply not only to American companies, but also to the many cases in which foreign companies whose products incorporate American technology.

Critics of the technology industry say that the Commerce and NSC measures would create a great incentive for US companies to locate their research and development efforts abroad. But others in the NSC, including Pottinger, believe that US companies must break relations with Huawei. He told SIA officials at a contentious meeting in September that they needed to better recognize the threat Huawei represented. US companies must develop “ways to support an ecosystem for telecommunications infrastructure and IT infrastructure that the free world can trust, instead of saying: ‘We need the Chinese market so much that we need to deprioritize our national security'” said Pottinger. then in an interview, explaining his thinking.

The battle also took place in Congress. Last year, 19 lawmakers, 11 Republicans and eight Democrats presented three separate bills that would make it difficult for Commerce officials to remove Huawei from the list. Two of the three projects would have required Congress to vote on the elimination. What happened did not include that requirement, but some legislators have pledged to continue pressing.

Separately, a bipartisan group of senators proposed a measure that would direct at least $ 750 million toward approved companies that develop 5G wireless technology and create a separate $ 500 million fund for companies that implement “reliable and secure” equipment worldwide. Sens.

Richard Burr

(R., N.C.) and

Mark warner

(D., Va.), Who heads the Senate intelligence committee, introduced the bill.

Write to Bob Davis at [email protected] and Katy Stech Ferek at [email protected]

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