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Brands responded calmly to the recent escalation of the Trump administration’s war on Chinese telecom giant Huawei. Maybe too calm.
U.S. Commerce Department regulations issued Aug. 17 will in theory prevent Huawei from purchasing any hardware or software that has all inputs of U.S. origin, without a case-by-case license. That’s kind of a big deal, you might think.
The Shenzhen-based powerhouse competes with Samsung Electronics as a global handset manufacturer, and holds demand position in 5G technology. It is a major customer for leading tech names from Qualcomm (ticker: QCOM) and Qorvo (QRVO) to Taiwan Semiconductor Manufacturing (TSM). Washington could crush this flourishing symbiosis if it really wanted to. China Specialist Gavekal Research Marked the Commerce Movement a “Death Penalty for Huawei.”
Investors have not cared much so far. Not one of Huawei’s suppliers of blue chip sold much on the news. Shares of Telefon AB LM Ericsson (ERIC) and Nokia (NOK), their main competitors to expand 5G, did not move forward. Major stock movements were limited to smaller names such as lesser Taiwanese chipmaker MediaTek (2454. Taiwan), which crashed 10% on Tuesday, and rival Chinese phone maker Xiaomi (1810.Hong Kong), which jumped 6%.
Fatigue of trade war is one reason for the apathy of the market, says Mehdi Hosseini, an analyst at Susquehanna International Group. Relocation of commerce replaced three months ago a regulation that appeared to be repealed with loopholes. “The situation is so freakish chaotic that the market says, ‘We will not really do anything,'” Hosseini said.
Stock traders have become accustomed to ignoring much less news in recent months, says Matt Gertken, geopolitical strategist at BCA Research. “Last year, this would have caused a pretty big sale,” he says. “Now we are injecting economies with so much incentive that we do not feel the pain.”
There may eventually be a lot of pain, though, from the U.S. campaign against Huawei, and the broader tech Cold War. As Trump escalates hostility, presumptive Democratic presidential nominee Joe Biden will push her through in the same vein as he wins the U.S. election, Gertken predicts. “A technological cordon over China will mean huge costs for capital-intensive industry,” he warns.
At the enterprise level, Washington’s tightening supply poses certain dilemmas for Taiwan Semiconductor, the premier global chipmaker whose stock has risen more than a third this year, Hosseini said. “They are the largest foundry, but we can not ignore the consequences of more problems with sales to Huawei.”
A counterattack in Beijing could be aimed at one of the bull’s true treasures, Apple (AAPL), which receives a quarter of its revenue from China. “Like the American sucker punch on Huawei, Apple would be the obvious choice for revenge,” Hosseini says.
Chinese leader Xi Jinping is likely to withhold this card until after the U.S. election at least, and Trump does not want to antagonize on his way to term two or to retirement, Gertken says. But like any war, the tech cold war is almost certain to take unpredictable and costly turns. The price may be worth it, but there will be a price.
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