Checkpoint Asia

Trump’s Huawei Ban Removes $11 Billion of US Exports to China at the Stroke of a Pen

Trump has thrown a grenade at Huawei's supply chain, but only at the cost of launching a cruise missile salvo at American chip makers

To make its smarthpones and other telecommunications equipment Huawei each year buys $67 billion in parts and services from other companies.

…with the world’s leading telecom equipment maker, whose global procurement totals around $67 billion a year.

US companies account for at least $11 billion of that.

With Trump’s economic war on Huawei the Chinese company will suffer a shock to its supply chain, but equally so US companies will lose a customer worth $11 billion in sales every year. That’s a massive 8.5 percent of all US exports to China gone in a puff of smoke. (Incredible how massive Huawei is to account for such a huge portion of US exports to China.)

Huawei has accumulated a 6 to 12 month supply of critical parts for the short term, and in the medium term it will source its components from elsewhere. In the immediate these won’t be of the same quality, and some of them will require massive investments to start producing in China but eventually there won’t be much difference. Why am I able to say that? Because the most complex and critical part of a smartphone is its miniature central processing unit, and Huawei’s in-house CPUs are pretty good already, and able to give Qualcomm and Intel a run for their money.

Meanwhile what will happen to US suppliers? Perhaps Huawei’s troubles, including the Android cut off, will mean that some other non-Chinese phone maker will take over Huawei’s market share and US components-makers can switch their business to supplying that company, but that’s a huge gamble.

Chinese phone makers have 42% of the global market share, 32% of the market share in Europe, and account for 54% of all Android phones. Their market share in Asia and Africa is even greater. And all these numbers are growing. There is a reason for all this. Apple isn’t going to be suddenly displacing the Chinese in Africa because Huawei had a supply chain disruption.

Except perhaps where CPUs are concerned, it will be far more difficult for US parts makers to find another customer, than for Huawei which has its customers, the final consumer, — to find another supplier.

Trump has thrown a hand grenade at Huawei’s supply chain, but only at the cost of launching a cruise missile salvo at American chip makers.

To the extent this does not turn into an epic blow for US parts makers it is only to the extent they are able to mitigate the ban by oiling up their lobbying machine, and getting around it by moving even more of their production outside the US, or by selling through intermediaries.

The big question isn’t if Huawei can live without US suppliers but if consumers can live without Android. That depends on whether the Chinese can populate their own OS with popular apps. CNN is giddy about the prospect that they won’t:

I wonder if CNN is aware just how hi-tech China is today: