Tensions in the trade war between the U.S. and China had already escalated this week when the two economic superpowers on Monday increased their proposed tariffs on the import of each other's goods on everything from dairy products to sporting goods. On Wednesday, a two-step action from Trump administration took things to another level.
According to the U.S. Commerce Department, the executive order declares a national emergency to secure the information and communications technology critical infrastructure supply chain. "The executive order prohibits transactions that involve information and communications technology or services designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary whenever the Secretary of Commerce determines that a transaction would pose a threat to national security," the department stated Wednesday.
The order states that foreign adversaries are increasingly creating and exploiting vulnerabilities in information and communications technology and services, along with committing economic and industrial espionage against the U.S. Trump's order directs Commerce Secretary Wilbur Ross to draft rules to restrict the purchase of information and communications technology from companies "owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary."
Also on Wednesday, the Commerce Department reportedly said it was adding Huawei and the company's 70 affiliates to its "Entity List"—companies that are now prevented from buying components from American companies without U.S. government approval.
Reuters said it was told by U.S. officials that the decision could make it difficult if not impossible for Huawei—the world's largest telecommunications equipment producer—to sell some products because of its reliance on U.S. suppliers.
Trump's executive order statement begins as follows:
"I, DONALD J. TRUMP, President of the United States of America, find that foreign adversaries are increasingly creating and exploiting vulnerabilities in information and communications technology and services, which store and communicate vast amounts of sensitive information, facilitate the digital economy, and support critical infrastructure and vital emergency services, in order to commit malicious cyber-enabled actions, including economic and industrial espionage against the United States and its people. I further find that the unrestricted acquisition or use in the United States of information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries augments the ability of foreign adversaries to create and exploit vulnerabilities in information and communications technology or services, with potentially catastrophic effects, and thereby constitutes an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States. This threat exists both in the case of individual acquisitions or uses of such technology or services, and when acquisitions or uses of such technologies are considered as a class. Although maintaining an open investment climate in information and communications technology, and in the United States economy more generally, is important for the overall growth and prosperity of the United States, such openness must be balanced by the need to protect our country against critical national security threats. To deal with this threat, additional steps are required to protect the security, integrity, and reliability of information and communications technology and services provided and used in the United States. In light of these findings, I hereby declare a national emergency with respect to this threat."
Fearing the U.S.' crackdown on foreign telecommunications equipment suppliers will hurt smaller U.S. telecoms companies, The Economist's chief telecoms editor Matthew Kendall told The Guardian Thursday:
"While the bigger carriers are likely to be able to absorb the higher costs associated with using equipment from Nokia, Ericsson and smaller national manufacturers, it is the smaller start-up and rural US carriers that will suffer the most, with many of them already using Huawei equipment in their networks.
Whether the US will propose any form of financial assistance for small carriers to remove Huawei equipment is not yet clear, but competition and timescales for infrastructure delivery in regional US markets are likely to be adversely affected by this order, adding to uncertainty for small and medium-sized players who are likely to pass on costs to consumers."
Wednesday's developments came just two days after the U.S. and China traded tariff blows Monday (May 14), when Beijing said it would raise taxes on almost $60 billion worth of American goods, to which the Trump administration quickly responded to by releasing a new detailed list of $300 billion worth of Chinese imports that would be subject to tariffs of up to 25%.