The US is carrying out an extraordinary and unprecedented war against Huawei. This attack violates the rules-based international order that the US has championed since World War II. Rather than a civilized and fair competition, the current strategy resembles the modus operandi of Mafia. While Huawei is deeply wounded by the latest American extra-territorial bullying of global chip manufacturers, the overall narrative of China’s rise to the top of the technology pyramid remains unaffected. In the short term, Huawei has a couple of survival options; and in the long term, America’s brutal war will only accelerate China’s goal towards self-sufficiency.
Consider how the war on Huawei has escalated over the last two years, since it became a 5G leader in smartphones and telecom infrastructure:
USA: “We are going to ban Huawei from operating in the US.”
Huawei: “Okay, we will sell our products to the rest of the world.”
USA: “We will bully other countries such as UK, Japan, South Korea, and Canada to not buy Huawei 5G products.”
Huawei: “Okay, we will sell where we can. We are still #1 in 5G telecom infrastructure. Regarding patents, we have been #1 in the world for three years in a row. Oh, We also just became #1 in worldwide smartphone sales.”
USA: “We will stop you from using Google’s Android in your phones.”
Huawei: “Okay, we will develop our own operating system.”
USA: “We will arrest your CFO, Meng Wanzhou, who is also the daughter of Huawei’s founder.
Huawei: “We will pursue legal actions to get her freedom.”
USA: “We will stop selling you American semiconductor chips and components.”
Huawei: “Okay, we will design our own chips and find Chinese components for our smartphones and telecom gear.”
USA: “We will stop China’s ability to manufacture semiconductor chips. We will do this by forcing the Netherlands to not sell EUV machines to China. (Also, mysteriously, the machine – that China had already paid for – blew up in flames). We will also blackmail Taiwan’s TSMC to stop making chips for you, even though you’re TSMC’s largest customer.”
So, this is where we are. What are the options for Huawei (and China)?
In the short term, the outlook is depressing. Huawei won’t be able to use for too long its in-house cutting-edge processors that need 5nm semiconductor technology. Huawei did buy a lot of components in advance and kept them in its inventories, but they may last only one year or so. After that, perhaps it can use older 7nm or 14nm technology from the Chinese foundry company SMIC. Of course, this will lead to a devastating loss in revenue and market share.
Another option is to use latest Qualcomm chips, if the US will give a special waiver. Trump may agree to this, since it means more money for an American corporation.
The third possibility is that the Chinese government threatens reciprocal sanctions and ends the war on Huawei. Imagine if China banned Apple, which gets 20% of its revenue from Chinese consumers. China could also simply kill Apple by shutting down all the factories that assemble iPhones. If Huawei and TikTok are national security threats to the US, why can’t Apple be a threat to China?
Every large US corporation depends on China one way or another — for manufacturing and/or the consumer market. Thus, while China has been very patient and taking a lot of blows, it has the capability to inflict tremendous damage to the American economy. It’s possible that Beijing officials are waiting for the US election results before engaging in tough negotiations.
In the long term, China will catch up on semiconductor technology. Recently, Chinese scientists announced a breakthrough in 5nm lithography. Also, Chinese companies have lured thousands of top notch Taiwanese semiconductor engineers by offering very generous packages; and the Chinese government is willing to spend tens of billions of dollars on this vital sector. Xi Jinping has probably upgraded the original “Made in China 2025” to “Made in China 2022.”
Conclusion: The US is setting a terrible role model for a superpower. Desperate to hold on to its hegemony and blinded with rage, America is lashing out against China. Nobody seems to be thinking about the repercussions. Ten years from now, when China is #1, dollar is no more the king, and the US is lagging behind in leading-edge technologies, will the Chinese people forgive America for the past iniquities?