The United States and China have also been locked in a struggle for high-tech supremacy, in a race that has increasingly taken on political undertones this year. While the United States has long claimed an advantage in the tech industry, China’s internet companies, semiconductor makers and telecom equipment makers have all been growing rapidly, with many benefiting from government investment.
President Trump has tied national security to advancement in technologies like wireless networks, and has made protection of the domestic tech industry a part of his agenda. In March, he blocked a $117 billion bid by Broadcom, a Singapore-based chip maker, for the American chip maker Qualcomm, citing national security concerns and how it might allow China to leap ahead in next-generation 5G wireless networks.
A month later, the Commerce Department banned ZTE, China’s second-largest maker of telecommunications equipment, from using components made in the United States. Federal authorities said ZTE had violated American sanctions against Iran and North Korea, in a move that caused the Chinese company to cease “major operating activities” for a time. Mr. Trump ultimately intervened and ZTE agreed to pay a $1 billion fine, replace its board and senior leadership and allow the United States to inspect its operations with a handpicked compliance team.
Over the last decade, Huawei has grown into a powerhouse. Founded in 1987 by Ren Zhengfei, a former People’s Liberation Army engineer, it generated over $90 billion in revenue in 2017. Its equipment is the backbone of mobile networks around the world, and its smartphones are popular in Europe and China. That has made it a symbol of China’s technological prowess and evolution from a country that makes cheap but unreliable gadgets to cutting-edge products that can rival the best of Silicon Valley and other Asian technology giants.
Yet Huawei has long faced scrutiny as a security threat in the United States. Washington has expressed concern about using Huawei products, citing spying risk because of the company’s close ties to the Chinese government.
While Huawei has long tried to make inroads into the United States, it has been bedeviled by the security concerns. In January, Huawei’s effort to sell a new line of smartphones in the United States was derailed when AT&T walked away from a deal to distribute the devices.
Eswar Prasad, a trade policy professor at Cornell University, said the Huawei issue could be a cloud over coming talks. “A fragile trade truce between China and the U.S. that was already foundering is now at greater risk of unraveling in relatively short order,” Professor Prasad said.
He added: “It is likely that China will have a measured response to this incident, although it will certainly add a sharper edge to the negotiations between the two sides.”