Just a month after the Trump administration moved to blacklist Huawei in what still qualifies as perhaps the most aggressive broadside in the ongoing dispute between the world’s two superpowers, it became apparent that some companies had figured out how to beat the ban.
Both Micron and Intel were said to be shipping some products to China’s pariah tech giant thanks to the exploitation of the so-called de minimis rule.
“Even when companies have headquarters in the US, they may be able, through ownership of overseas subsidiaries and operations, to classify their technology as foreign”, Bloomberg wrote at the time, citing Cross Research’s Steven Fox. “If less than 25% of the technology in a chip originates in the US, for example, then it may not be covered by the ban, under current rules”.
Read more: How Micron Beat Trump’s Huawei Ban
Fast forward nearly six months and the administration has granted a trio of reprieves allowing some US firms to keep doing business with the company in the interest of not leaving folks in the dark – literally.
“The temporary general license extension will allow carriers to continue to service customers in some of the most remote areas of the United States who would otherwise be left in the dark”, Wilbur Ross said earlier this month, when the third reprieve was officially announced.
The problem for Trump is that the hardline stance on Huawei has bipartisan support and is also championed by a handful of big names outside of politics including, for example, Kyle Bass (not that anybody cares what Kyle says, but you get the point).
When Trump made a big deal out of the purported “national security” threat posed by Huawei, he put himself in an awkward position. If he needed to relax the crackdown in order to facilitate the trade deal, he couldn’t – or at least not without having to explain how that’s consistent with protecting national security.
Read more: White House Caught Between Several Rocks And One Very Hard Place Amid Huawei, Trade, Hong Kong Drama
Well, now, the US is considering an expansion of the rules around foreign shipments in order to close some of the loopholes mentioned above amid what Reuters described on Friday as “frustration the company’s blacklisting has failed to cut off supplies”.
According to a pair of sources, the administration is mulling changes to two rules, one of which is the above-mentioned de minimis rule. The other is the Direct Product Rule, under which foreign-produced items based on US tech are subjected to US regulations.
One D.C.-based trade lawyer told Reuters the contemplated broadening of the rules would entail “a major expansion of the reach of US export controls and would be poorly received by US allies and US companies”.
So, this would be a lot like the trade war itself, then.
The attorney – Doug Jacobson – also said broadening the rules would undermine supply chains and likely wouldn’t succeed in permanently impairing Huawei’s operations, as the company would eventually find a way to source the necessary technology from other companies.
It’s not known whether this move is imminent, but it is apparently being pushed hard by Trump’s trade hawks, which almost always means Peter Navarro.
You can add this to the list of potential stumbling blocks to an agreement on trade.
Perhaps more importantly, this is yet more evidence that the trade war has morphed into a technology war and will likely involve capital flow restrictions once Trump runs out of ways to squeeze Beijing.
In other words, it no longer makes sense to conceive of this as a narrowly-construed “trade war”. It’s an economic Cold War. Full-stop.
‘This Will Determine Our Future’: Watch Ray Dalio Talk Possible ‘Capital War’ Between US, China
national security. oh yeah.