Why President Trump's Move Against Huawei Is Such A Big Deal

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

My co-host, Tracy Alloway, she's off. She couldn't make today's episode. It's kind of an emergency last minute episode, though, because we wanted to do something very timely with just the right guest. Obviously, the trade tensions with China continuing to ratchet up, and it's really becoming less and less, I would say, about the trade deficit and some of these classical topics that we think of in a trade war, and much more about this sort of brewing technology cold war, as people are putting it, and the moves that the Trump administration has taken against some of China's big tech companies.

Today, I'm going to be speaking on the subject with a previous Odd Lots guest, going to be talking with Dan Wang. He's a technology analyst at Gavekal Dragonomics. He's also a Bloomberg Opinion columnist, which is very cool. You might recall, we spoke to Dan a while ago about the China 2025 initiative, the endeavor on the part of the Chinese government to really sort of build its own domestic leadership in all these big tech areas. So Dan is really the perfect person to discuss these new developments with, wanted to get them on, wanted to get his perspective on the latest developments. So without further ado, I want to bring in Dan Wang. Thank you very much for joining us.

Dan Wang (1:44)

Thanks a lot, Joe.

Joe Weisenthal (1:45)

So obviously pretty interesting moves we've seen over the last few weeks, a very serious ratcheting up in the trade war talks as President Trump has moved to really put the pressure on Huawei, a major Chinese tech giant. What do you describe to us to start? What is Huawei? What is their significance in the global or in the Chinese tech ecosystem? Where did they come from? How did they become so important?

Dan Wang (2:15)

So I think Huawei is the most important technology company in China, and it has a few major business lines. I think the two most important ones are its smartphone business and then its network equipment business. So as a matter of comparison, Huawei sold about as many smartphones as Apple did last year, although at much lower profits. But it is a major seller of smartphones around the world, not just in China, but also in Southeast Asia and now increasingly in Europe. The other major business line it has is network infrastructure equipment. So all of these things that make mobile calling possible and 4G or LTE possible, a lot of it, at least outside the US, is provided by Huawei.

And as the world is getting ready to transition to the next generation, the fifth generation of mobile network technologies or 5G, Huawei is a pretty major player in that ecosystem.

Joe Weisenthal (3:12)

How cutting edge are they? I mean, if you look at the companies, and I guess either on both lines, whether it's smartphones or networking equipment, are they sort of a best of breed player in this stuff?

Dan Wang (3:25)

I think the consensus is that Huawei is very competent on both the smartphone business and then also the network business. So on the smartphones, I think people in the US don't really get to see this, but a lot of the reason that Apple has been doing not so well in China is that basically Huawei and a few other players have made pretty good phones at quite a bit lower prices than Apple does. In fact, Samsung has been almost completely squeezed out of the China market because Huawei's phones are really good. And Huawei is giving a run for Samsung's money basically in many markets in the world. But plausibly, Huawei is a little bit behind or quite a lot behind Apple on the smartphone business. On the network equipment business, I think it is arguably really leading.

Everything I hear is that basically the network equipment business, not only is it selling as good or cutting edge equipment or even better equipment than its competitors, which are mostly Ericsson and Nokia, it is also often significantly cheaper.

Joe Weisenthal (4:25)

Talk to us about the action that Trump took.

Obviously, the companies that supply technology to Huawei, including many American companies, are now theoretically restricted from doing business with them. So how existential is this to Huawei's business, this move from the Trump administration?

Dan Wang (4:47)

I think it is a pretty existential threat. Now what the Trump administration did was about two weeks ago, it added Huawei to this list called the entity list. And what this is effectively is this export blacklist, which doesn't allow US companies to export any equipment, basically any components or any technologies over to Huawei.