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Trump bets the farm on Huawei equipment ban – Asia Times

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After a failed two-year campaign to stop China’s Huawei Technologies from leading the world’s rollout of 5G mobile broadband, the Trump Administration announced the so-called nuclear option, asserting control over sales of computer chips made anywhere in the world with US equipment.

Silicon Valley firms like LAM and Applied Materials provide high-end fabrication equipment to the chip-fabrication giants who manufacture the chips that Huawei designs, and the US rule announced Friday could shut off Huawei’s access to the top-of-the-line chips it buys from Taiwan Semiconductor Manufacturing Corp (TSMC).

The ban may apply not only to the high-end chips that Huawei buys from Taiwanese fabricators for its high-end smartphones and servers, but also to radio frequency devices that power its 5G base stations.

That might hold back China’s US$170 billion internal rollout of 5G and hamper Huawei’s network building elsewhere, according to industry experts.

Earlier this year, the Trump Administration floated a number of plans for competing with Huawei, including a “virtual 5G” approach that substitutes software for hardware, or the purchase of Sweden’s Ericsson, the second-largest builder of 5G networks.

Ericsson is presently worth about $28 billion; add an acquisition premium and a $15 billion shot to its R&D budget, and for $50 billion the US would have had a national champion to take on Huawei. The tech war might cost the US many times that amount. 

If China retaliates by shutting US tech companies out of the Chinese market, the outcome will be a collapse of trans-Pacific technology trade, aggravating what already is the worst economic downturn since the Second World War.

Both sides will suffer, perhaps gravely.  The dispute has the potential to escalate into an all-out trade war that would push the world into depression. 

In the medium term, China will build substitutes for US equipment. China buys nearly 60% of the world’s semiconductors, and the loss of the Chinese market would cripple the American semiconductor industry.

When the US stopped American chipmakers from selling chips to China’s number two telecommunications equipment firm ZTE in April 2018, the company shut down. By December 2018, though, Huawei had designed its own chipset for smartphones with capability that matched Qualcomm’s.

TSMC fabricates the chips, and that is what the new US ruling threatens to block.

The new US rules pushes the world into uncharted territory. Semiconductors drove the digital transformation of the world economy, and their design and manufacture combines technology from thousands of firms in dozens of countries.

The next shoe to drop will come from Beijing, which is mulling retaliatory sanctions against US companies like Apple, Qualcomm, Boeing and Cisco. Chinese leader Xi Jinping did not handle the initial phase of the epidemic well and suffered a significant loss of prestige. He cannot afford to be humiliated by the United States, and will respond in kind.

Washington’s after-the-fact assertion over extraterritorial rights over sales of products made by American equipment has no precedent. During the Cold War, foreign companies that bought American technology had to give assurances in advance that the products would not be sold on to the Soviet Union and its allies.

In this case, Taiwan Semiconductor and other fabricators bought American equipment to make products for Huawei and other Chinese companies. Huawei is now TSMC’s largest customer, overtaking Apple. The semiconductor industry around the world will scramble to remove as many American components as possible from the supply chain.

It’s also unprecedented for the United States to try to stop the rollout of a key technology – in this case 5G broadband – rather than lead the rollout itself. If Huawei can’t source radio frequency devices from Taiwan, it will not fulfill its contracts to build 500,000 base stations. 

It’s possible that Huawei’s 5G rollout in Europe will be set back by a year or more, giving Washington more time to think up  an alternative. But it’s also possible that the US semiconductor industry will be the odd man out, as the rest of the world finds alternatives to US technology.

Washington is betting the farm on the hope that China and its partners won’t find a workaround in time. If they do, the new restrictions will be America’s last hurrah as a tech power. Ten years ago China would have been helpless. But during the past decade Chinese universities have muscled their way up to world class, thanks in large part to the return of tens of thousands of Chinese with doctorates from American universities.

China’s tech industry has the depth and breadth to attack the whole range of semiconductor production issues. Throughout the escalating Sino-American tech war, the Chinese have come up to speed faster than either Washington or the industry consensus expected.

The risk is that the US might lose the crown jewels – its leadership in semiconductor technology. That’s why the Trump Administration hesitated to impose a third-party export ban earlier.

At the urging of the US Defense Department, the White House rejected the nuclear option late in 2019, after America’s top tech designers warned that Chinese retaliation would shut them out of the Asian market. National Economic Council Chairman Larry Kudlow told the Wall Street Journal February 4: “We don’t want to put our great companies out of business.”

The president tweeted February 18: “The United States cannot, & will not, become such a difficult place to deal with in terms of foreign countries buying our product, including for the always used National Security excuse, that our companies will be forced to leave in order to remain competitive.”

Trump changed his mind after blaming China for the coronavirus epidemic. His trade adviser Peter Navarro declared last week, “We are at war with China,” and accused China of deliberately sending infected passengers on international flights from Wuhan to spread the virus.

Some observers attribute Washington’s increasingly hostile stance towards China to election rhetoric, but Trump didn’t have to throw a hand grenade into the semiconductor supply chain to get votes.

There is another, more ominous motivation. America faces a GDP decline of perhaps 10% during 2020, and an extremely uncertain recovery as it gradually reopens business activity without widespread testing or contact tracing.

The Asian economies – where the epidemic is largely under control– are coming back on line rapidly, and intra-Asian trade is booming (see “Who’s Decoupling from Whom?,” Asia Times, May 11, 2020).

Defense Secretary Mike Espers warned May 4 that China will use the pandemic to expand its footprint in Europe, “as a way to invest in critical industry and infrastructure, with effect on security in the long term.”

As a spinoff from its flagship 5G product, Huawei offers a series of artificial intelligence (AI) applications for healthcare, including diagnostic, telemedicine, and pharmaceutical research. China’s AI capacity played a key role in suppressing the epidemic, and hopes to lead in medical AI, possibly the 21st century’s biggest industry. China’s success in applying AI to epidemic control is an important selling point.

China meanwhile badly misplayed what should have been a strong hand. Navarro’s allegation that China deliberately spread the epidemic is inflammatory nonsense, and Secretary of State Mike Pompeo has yet to provide evidence that Covid-19 came from the Wuhan Virology Lab, as he alleged vociferously last week.

But China did prevaricate for weeks before admitting that an epidemic was underway – despite warnings from top Western virologists early in January that the world might face a global pandemic.

Western scientists had an accurate picture of the risk by the first week in January, but with few exceptions failed to persuade their governments to act quickly. Beijing’s ham-handed attempts to buy influence through so-called face-mask diplomacy annoyed the Western countries most sympathetic to China.

Washington hopes that China’s loss of face through the epidemic will make it easier to impose controls on technology.

Retaliation against China through extraterritorial bans on chip sales is a high-risk  response. LAM, Applied Materials and other American equipment makers dominate the present market, although Holland’s ASML has a monopoly on extreme ultraviolet lithography (EUV), the technology required to make the chips with the highest density of transistors.

Late last year the US persuaded the Dutch government to block the sale of a EUV machine to China. Last year the Chinese Academy of Sciences announced that it had developed its own EUV machine, but it is far away from application to large-scale production. If China puts its industry on a wartime footing with Manhattan-Project style resources, it might develop substitutes faster than the US expects.

According to Dr Handel Jones, the CEO of International Business Strategies, a prominent semiconductor consulting firm, “Blocking 5 and 7 nanometer sales to Huawei” from Taiwan Semiconductor and other fabricators “will have a major impact on the ability of Huawei to be competitive in smartphones.

Blocking radio frequency devices and other products to Huawei will stop the buildout of 5G in China, and that will not be tolerated. Even switching designs to [the mainland Chinese fabricator] Semiconductor Manufacturing International Corp at 14 nanometers would take a year.”

“It is both a very serious and volatile situation,” Dr Jones added. “There is a 120-day grace period where hopefully compromises will emerge.”

China meanwhile is considering its response. From the Chinese side of the board, elementary game theory indicates a maximalist response designed to inflict extreme damage on the already-weakened US economy.

The Chinese English-language daily wrote May 17: “Some industry analysts believed that a counterstrike against US companies like Qualcomm and Apple might prompt them to lobby against such restrictions as their interests in the Chinese market are important for maintaining their sustainable growth. For instance, 65% of Qualcomm’s total revenue lay in China, according to media reports in August 2019.”

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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Canadian major telcos effectively lock Huawei out of 5G build – ZDNet

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Image: Shutterstock

Canadian carriers Bell and Telus announced on Tuesday that each of them would not be continuing the use of Huawei equipment in their respective 5G networks, having signed deals with the Chinese giant’s rivals instead.

For Bell, it announced Ericsson would be supplying its radio access network. It added that it was looking to launch 5G services as the Canadian economy exited lockdown.

Bell, which in Febraury announced it had signed an agreement with Nokia, said it was maintaining the use of multiple vendors in its upcoming network, as it had for 4G.

“Ericsson plays an important role in enabling Bell’s award-winning LTE network and we’re pleased to grow our partnership into 5G mobile and fixed wireless technology,” said Bell chief technology officer Stephen Howe.

Meanwhile, the British Columbia-based Telus also chose to go with a combination of Ericsson and Nokia.

The company said it had spent CA$200 billion on its network since the turn of the century, and would part with a further CA$40 billion over the next three years to deploy its 5G network.

Both Bell and Telus had previously used Huawei equipment in their networks. In February, Telus told the Financial Post it would be using Huawei in its 5G network.

The third member of the Canadian major telco triumvirate — Rogers — said in January it would be using Ericsson equipment for its 5G rollout.

The decisions from Canada’s three major carriers now mean Huawei is increasingly isolated from 5G builds within the Five Eyes nations.

In Australia, Huawei has blamed its ban on supplying 5G equipment for a fall in its carrier business and net profit.

Huawei is also at the centre of the trade dispute between the United States and China, with Washington recently clamping down on Huawei’s semiconductor supply, with companies needing an export licence to sell to the Chinese giant.

Although not officially banned, Huawei has not made inroads in New Zealand after GCSB prevented Spark from using Huawei kit in November 2018.

Meanwhile in the United Kingdom, although it in January decided to limit the involvement of Huawei — restricting it to a 35% cap of all radio equipment and preventing the Chinese giant from supplying any equipment in the core of the network, as well as banning the use of Huawei equipment at sensitive locations such as nuclear sites and military bases — reports last month said that the decision would be reviewed.

Canada is also the centre of the furore involving the extradition of Huawei CFO Meng Wanzhou, following her arrest in December 2018.

Last week, the British Columbia Supreme Court ruled the extradition could proceed. CBC reported that the presiding judge ruled that the fraud that Meng has been accused of would be a considered a crime in Canada, as well as the United States.

Meng, the daughter of Huawei’s founder, is currently on bail where she is required to stay confined to one of her two Vancouver homes between 11pm and 6am. In the United States, Meng currently faces an indictment for allegedly misrepresenting Huawei’s ownership and control of its Iranian affiliate, Skycom, to banks, which breached UN, US, and EU sanctions.

Two Canadians, Michael Kovrig and Michael Spavor, who were detained by Chinese authorities soon after Meng’s arrest, recently clocked up 500 days in confinement.

“Not only are their conditions terrible but they are cut off from any meaningful connection and at this time of pandemic they seem to be even more remote,” former Canadian ambassador to China David Mulroney told The Globe and Mail.

“It’s a hostage-taking and the ransom demand is Meng Wanzhou.”

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Saudi Arabia And Russia Agree To Extend Production Cuts – OilPrice.com

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Saudi Arabia And Russia Agree To Extend Production Cuts | OilPrice.com

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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    Saudi Arabia and Russia have reached a preliminary agreement to extend the current level of the OPEC+ production cuts by one month, provided that the laggards in compliance ensure over-compliance going forward to compensate for flouting their quotas so far, OPEC sources told Reuters on Wednesday.  

    “Any agreement on extending the cuts is conditional on countries who have not fully complied in May deepening their cuts in upcoming months to offset their overproduction,” an OPEC source told Reuters.

    According to the original agreement reached in April, OPEC+ was to cut 9.7 million bpd in combined production for two months—May and June—and then ease these to 7.7 million bpd, to stay in effect until the end of the year. Then, from January 2021, the production cuts would be further eased to 5.8 million bpd, to remain in effect until end-April 2022.

    Despite weak compliance from OPEC in May, as per a Reuters survey, the market expects that the OPEC+ coalition is motivated enough to extend the 9.7-million-bpd cuts through July or August. 

    On Monday, reports emerged that the OPEC+ group could hold its June meeting this week, earlier than the initial plans to hold the teleconference on June 9 and 10.  Related: Petrobras Oil Stockpiles Are “Paradoxically” Low

    However, an earlier meeting is being held up by the fact that the leaders of the pact, Saudi Arabia and Russia, will be seeking assurances from all non-compliant members that they will over-comply going forward to compensate for the loose compliance in May, an OPEC delegate told Argus today. According to the delegate, there will be “no free ride” for non-compliant members in the OPEC+ deal. These producers likely include Iraq and Nigeria from OPEC and Kazakhstan from non-OPEC.

    OPEC’s second-largest producer and the biggest laggard in the output cuts, Iraq, said on Tuesday that it would further reduce production and that it remains committed to the OPEC+ pact.

    Oil prices retreated following the reports of a one-month extension, after earlier on Wednesday prices had hit nearly three-month highs, with Brent Crude breaking above $40 a barrel.   

    By Tsvetana Paraskova for Oilprice.com

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      Bank of Canada keeps key interest rate target on hold – CTV News

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      OTTAWA —
      The Bank of Canada kept its key interest rate target on hold as it said it believes the economy has avoided its worst-case scenario due to the pandemic.

      The central bank said Wednesday its target for the overnight rate will remain at 0.25 per cent.

      It said the impact of the pandemic on the global economy appears to have peaked, although uncertainty about how the recovery will unfold remains high.

      The bank said it believes Canada has avoided the most severe economic scenario painted that it painted in April, updating its GDP figures for the second quarter of the year.

      The central bank now expects GDP to decline between 10 and 20 per cent compared with the fourth quarter of 2019, down from the 15 to 30 per cent decline forecasted in April.

      In a statement announcing the rate decision, the central bank said it still expects the economy to resume growth in the third quarter.

      “Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery,” the statement said.

      The announcement comes on the first day of Tiff Macklem’s tenure as governor, taking over from Stephen Poloz whose seven-year term ended Tuesday.

      Macklem participated as an observer during deliberations by the bank’s governing council over the past few days, the statement says, adding that the new governor “endorses the rate decision and measures announced.”

      The bank also announced it was reducing the frequency of its term repo operations and purchases of bankers’ acceptances citing improvements in short-term funding conditions.

      Other programs to purchase federal, provincial, and corporate debt will continue unchanged, the bank says, but adds it could change tactics in response to economic conditions.

      “As market function improves and containment restrictions ease, the Bank’s focus will shift to supporting the resumption of growth in output and employment,” the statement says. “The Bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway.”

      Economic reports continue this week with Statistics Canada’s look at the May jobs market scheduled for release Friday.

      This report by The Canadian Press was first published June 3, 2020

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