Business & Economy An embargo on Huawei will severely disrupt global supply chains - analysts

An embargo on Huawei will severely disrupt global supply chains – analysts

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In the wake of Huawei’s chief financial officer Meng Wanzhou’s arrest on December 1, as requested by the United States (along with her extradition), relationships with China are looking to be strained. The arrest, along with intentions to ban the the technology giant from some markets, could severely disrupt global supply chains and push the US out from the booming digital economy.

The arrest of Meng Wanzhou, daughter of 74-year-old Huawei founder Ren Zhengfei, had the unfortunate timing of sharing the same day with the meeting between U.S. President Donald Trump and Chinese President Xi Jinping. Markets all over the world went down, after fears that the meeting’s intentions, which were to discuss eliminating trade tariffs between the two leading nations, would be for nought, thanks to Wanzhou’s arrest.

U.S. President Donald Trump’s attempt at quelling such fears was to deliver this tweet on December 7 – “China talks are going very well!”

Bail of USD 7.5 million has since been set for Wanzhou on December 11, but her arrest came at a time when carriers around the world are looking to spend billions of dollars on equipment for fifth-generation wireless technology. Huawei has spent years preparing for this massive opportunity, and the incident with Wanzhou is the equivalent of throwing a spanner in the works.

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Analysts are concerned that going against Huawei is a big, bad move that could push the U.S. out of the future digital economy and stop the flow of supply chains around the world.

According to another news source, a recent study from Global System for Mobile Communication Association and Global TD-LTE Initiative predicts that by 2025, almost 1.2 billion people around world will operate on 5G networks, 30 percent of them in China.

A new era for the digital economy is on the horizon, with China set to become the world’s largest 5G market. Alienating China in any way would cause a severe disruption in the global supply network.

As Huawei’s part in the global 5G value chain is integral, Wanzhou’s arrest has therefore not only instilled fear in many suppliers but has also been linked with measures to prevent companies from China from taking part in the building of 5G networks in local markets.

Cracking down on Huawei will cause unwanted, negative effects on technology giants Microsoft, Intel and Qualcomm and upset the world’s 5G system.

The worry now is that the Chinese will not welcome companies from the U.S. and Canada to share in China’s digital economy, thanks to how Wanzhou’s case has been handled.

Analysts have weighed in on the matter:

“Huawei is the largest company in China.”

“Attacking Huawei is like attacking the root of China.”

“It is worth monitoring if top components suppliers from other countries beyond the U.S., such as Taiwan’s TSMC, Japan’s Murata Manufacturing and South Korea’s LG Display, will also be under pressure to stop supplying key parts to the Chinese company if Washington imposes a ban on acquiring American parts.”

– Jonah Cheng, chief investment officer at J&J Investment and a UBS veteran tech analyst to the Nikkei Asian Review

“Huawei is one of the biggest buyers for technology components and semiconductors as it controls more than 27% market share in making telecom equipment and 14% in the global smartphone market.” 

“An embargo on Huawei, should it happen, could halt operations and result in significant supply chain disruptions in the near term.” 

– Bernstein analyst Mark Li

“Meng’s detention shows that the U.S. still has plenty of other nontariff weapons to deploy in its economic and technological campaign against China.”

– Gavekal Research analyst Tom Holland

If the U.S. puts a ban on Huawei from using American technology, just like it did with  Chinese telecommunications equipment company ZTE, global supply chains are going to be disrupted in earth-shattering ways.

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