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International Business Telecom giant Huawei ban clouds U.S.-China trade talks, technology sector

A U.S. bid to block China’s Huawei Technologies from buying vital American technology threw into question sales from some of the largest tech companies and drew a sharp rebuke on Thursday from Beijing, which warned it could hurt trade talks.

Shares of Huawei’s U.S. suppliers fell on fears the Chinese firm would be forced to stop buying American chips, software and other components after the Trump administration banned it from buying U.S. technology without special approval.

Huawei, the world’s biggest telecoms equipment maker, said that losing access to U.S. suppliers “will do significant economic harm to the American companies” and affect “tens of thousands of American jobs.”

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Commerce Ministry spokesman Gao Feng stressed that the United States should avoid further damaging Sino-U.S. trade relations. “China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms,” Gao told reporters.

China’s Foreign Ministry also announced the formal arrest of two Canadian citizens who were detained shortly after Canada arrested Huawei Chief Financial Officer Meng Wanzhou in December.

Meng faces extradition to the United States on charges that she conspired to defraud global banks about Huawei’s relationship with a company operating in Iran. She and the company deny the charges.

While Canada says China has made no specific link between the detentions of the two men and Meng’s arrest, experts and former diplomats say they have no doubt it is using their cases to pressure Canada.

POLITICAL SUPPORT

On Wednesday, the Commerce Department said it was adding Huawei and 70 affiliates to its “Entity List,” which bars them from buying components and technology from U.S. firms without government approval. On Thursday, U.S. Commerce Secretary Wilbur Ross told Bloomberg Television and Radio the order will go into effect on Friday.

Lawmakers in the U.S. Congress have long feared Huawei’s equipment could be used by the Chinese government to spy on Americans, and the Trump administration’s move has won bipartisan support in Congress.

Senator Roger Wicker, the Republican chairman of the Senate Committee on Commerce, Science, and Transportation, said on Wednesday it was “a necessary step to prevent the use of communications equipment that poses a threat to the United States.”

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Senator Mark Warner, a Democrat and vice chairman of the Senate Select Committee on Intelligence, backed the executive order banning U.S. telecommunications firms from buying from Huawei, as did other Democrats.

Warner called the decision “a needed step” but expressed concern about the prospect of other nations rebuffing U.S. efforts to convince them to not use Huawei equipment for 5G, the next generation of wireless.

Warner also expressed concern about how the move would affect small U.S. rural carriers, who have relied on the cheaper Chinese equipment maker. He called a plan to replace the equipment “a potentially multi-billion dollar effort.”

ECONOMIC FALLOUT

The Commerce Department said on Wednesday it was adding Huawei and affiliates to its “Entity List,” which bars them from buying components and technology from U.S. firms without government approval.

Lawmakers in the U.S. Congress have long feared that Huawei’s equipment could be used by the Chinese government to spy on Americans. Democrats and Republicans lined up in support of the Trump administration’s move.

Republican Senator Marco Rubio said firms should reconsider entering into long-term contracts with Huawei, noting in a tweet that “very soon Huawei will lose access to important components like chips, antennae & phone operating systems.”

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Rubio added that for Huawei there are “real questions now about how they can survive this.”

Leading analysts downgraded their assessments for several microchip companies in the wake of the move against Huawei, which was the world’s third largest purchaser of semiconductors last year.

Huawei was the world’s third largest purchaser of semiconductors last year, accounting for 4.4 per cent of global market share and behind only Samsung Electronics and Apple , according to Gartner, a research firm.

Susquehanna Financial Group analyst Christopher Rolland said he believed Huawei had built up a one- to two-year supply of U.S. components, noting that “this is what Huawei was afraid of!” Rolland cut price targets on several microchip companies, including Xilinx Inc.

Shares of Xilinx were down 5.7 percent in the early afternoon on Thursday while those of rival chipmaker Qualcomm Inc fell 3.6 percent. They were the biggest drags on the Philadelphia SE Semiconductor Index.

Optical components maker NeoPhotonics Corp was the biggest loser, with its shares falling 16.3 per cent.

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Analog Devices and Finisar Corp was down about 2.5 per cent while Skyworks Solutions shed 4.8 per cent, Qorvo was down 5.9 per cent, laser sensor maker Lumentum Holdings fell 9 per cent, and memory chipmaker Micron Technology lost 2.7 per cent.

There are also growing signs the U.S.-China trade war could filter into the broader economy.

Walmart Inc said prices for shoppers will rise due to higher tariffs on Chinese goods even as the world’s largest retailer reported on Thursday its best comparable sales growth for the first quarter in nine years.

Walmart Chief Financial Officer Brett Biggs told Reuters the company will seek to ease the pain, in part by trying to buy from different countries.

TARIFFS

As negotiations towards resolving the trade war stalled last week, the United States ramped up the pressure by raising tariffs on a list of $200 billion worth of Chinese imports to 25 per cent from 10 per cent.

China, which views the U.S. decision last year to impose tariffs as the genesis of the trade war, retaliated this week with higher duties on a revised list of $60 billion worth of U.S. products.

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President Donald Trump, who has embraced protectionism and accused China of engaging in unfair trade practices, has threatened to put 25 per cent tariffs on another $300 billion worth of Chinese goods.

With few options left for levying tariffs on U.S. goods, China could opt for other ways to pressure the United States, including blocking corporate mergers and other deals.

“There’s other things they can do, and M&A would certainly be one thing,” said Stacy Rasgon, an analyst with Bernstein.

While the United States wants significant changes in China’s approach to intellectual property rights and state subsidies as part of any trade deal, Beijing is insisting that all tariffs be eliminated.

The two sides are also at odds over how much more in U.S. goods China would have to agree to buy as well as how balanced the text of the draft trade agreement should be, Vice Premier Liu He, China’s lead trade negotiator, said last week.

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