Business

Economics Trumps All: A Look at the Huawei Trade Ban

Yes, we’re talking about the US declaring war on Huawei. The world’s biggest superpower declaring war on the world’s biggest technology company. The two players on both sides of this warped sea saw make for an incredulous disbalance. Country versus a company. If Orwell were alive, he would recount all the citations in 1984 and declare this to be on the path to WWIII.

There are essentially two parts to a smartphone: the hardware and the software. While the hardware involves manufacturing and procurement of components, the software is where the war is fought. It may take a little time, but Huawei and other Chinese phone manufacturers can certainly source their hardware requirements from closer to home. But if China’s entire population, all of whom already use native Chinese services and apps, moves from Android and iOS platforms to a locally developed platform, the American companies will have a lot more to lose in the trade war.

Huawei purchased $50 billion worth of components last year of which $11 billion were bought from American businesses. Fab manufacturing is expensive and needs big sales to remain sustainable. The ban will slow down Qualcomm’s plans for its 5G rollout, which will have a catalytic effect on the entire futuristic ecosystem that is growing on a very specific trajectory.

If China increases tariffs or puts a ban on assembly of American phones, it will hit the US where it hurts most: in the consumer’s wallet. The economic hit to an American company and consumers as a result of this trade war will be, to borrow a quote from Trump, will be ‘huge’.  

While a lot of has been written about the issue, perhaps one thing that hasn’t been said enough is this: Huawei isn’t the first company to be accused to be a security threat to the US. If the accusation is that China is tapping into Huawei devices to spy on citizens, isn’t every company doing the same? Google, Facebook, WhatsApp and every other social media platform that has a large userbase. Don’t intelligence agencies encourage such growth to make their own surveillance better? While China may or may not be spying, Russia already did and it’s taken 2 years for the US to take no action.

Huawei is China’s biggest smartphone vendor and outside the country, Huawei is one of the more Chinese consumer brands. What is interesting to note is that US smartphone manufacturers are more dependent on Huawei than the other way around. Despite the fact that Google backed away from Huawei like the plague, Huawei will make a comeback because it all comes down to numbers. China is far more resilient, cost-effective and efficient than the US when it comes to manufacturing. There may not be as much quality or innovation, but the economics trumps all.

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