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The US closes its telecommunications market to China and irritates Europe with its subsidies


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The FCC, the US telecommunications regulator, has barred US state-owned companies from buying telecommunications equipment and services from five Chinese companies “on national security grounds”, including video surveillance cameras from Hikvision and Dahua, world leaders in the sector and used everywhere. For their part, the European Union and several countries allied with the United States, led by France and Germany, are very upset by the subsidies that President Biden wants to grant to manufacturers on US soil, under the approved law to reduce inflation (IRA), because they consider that it violates international free trade agreements.


The United States has turned blatantly protectionist with its America First policy, which Donald Trump started but Joe Biden has greatly expanded. The trade attacks are especially directed against China, first with the extension of the ban on selling US semiconductor manufacturing equipment and software to China under the Chips Act passed in early October, and now with the decision of the FCC to also extend the ban on the sale and import of telecommunications and video surveillance equipment manufactured by Chinese companies that are likely to threaten national security. The FCC order is, in fact, an extension of the Secure Equipment Act signed in November and is directed especially against Huawei and ZTE telecommunications equipment and services but also extends to Hikvision and Dahua, the two leading global manufacturers. video surveillance and supervision equipment, and Hytera, for now.


The allies of the United States, with the European Union at the helm but also with the firm rejection of Japan and South Korea, have shown their indignation at the approval last August of the Inflation Reduction Act (IRA), legislation intended to offer incentives and subsidies of up to $7,500 for electric or hybrid vehicles manufactured on US soil, and that before the end of the year the criteria for their award should be established. The allies of the United States have threatened to sue the Biden Administration before the World Trade Organization (WTO) if the law is not fully revised because they consider that the IRA contravenes international free trade agreements, is discriminatory and seriously harms industrialized countries. .

The FCC’s ban on selling telecommunications equipment from Chinese companies is, in fact, an extension of last November’s Secure Equipment Act and to benefit the national security of the United States.

Jessica Rosenworcel, president of the FCC, the administrative body that regulates all telecommunications services and equipment in the United States, published last Friday the legislative proposal to extend the existing blockade of the sale of new telecommunications equipment and services by Chinese companies, with the unanimous support of all FCC members. In the Rosenworcel statement published by the FCC, it is clearly stated that it is acting in the interest of the national security of the United States, being the first time in the country’s legislative history that telecommunications equipment is prohibited on the grounds of national security, specialists say.


Following the Secure Equipment Act signed by Biden in November, the FCC will not authorize with its legislative order on Friday equipment that is specified in the secure equipment law (the Covered List) because it poses “an unacceptable risk to the national security of the United States or the safety of the people of the United States.” This includes, adds the FCC statement, telecommunications and video surveillance equipment from Huawei and ZTE and also from Hytera, Hikvision and Dahua that are used “for security in public spaces, security of government buildings, video surveillance of critical infrastructures and other aspects of national security”. These last three companies will be required to document the security of their equipment and will be denied authorization until they have done so.

Wide range of telecommunication products

The order published by the FCC also covers “base station equipment that operates on telecommunications networks and the phones, cameras, and Wi-Fi routers that are in our homes, as well as white-labeled or relabeled equipment.” And it is recognized that because this equipment may evolve over time, the FCC reserves the right to review and expand the list of prohibited products and, if it deems necessary, revoke or void authorizations already made.


The FCC had already designated Huawei and ZTE in 2020 as susceptible to violating national security and prohibited US companies from buying their equipment with government budgets. Since then, Chinese companies have reiterated that they strictly abide by US regulations and are being treated unfairly by the US government. “The FCC’s decision does nothing to protect national security, but it will cause great harm and make products used by America’s small businesses, local authorities, schools, and individual consumers more expensive at the time to protect their homes, businesses and property,” Hikvision said in a statement. Huawei and ZTE have not said anything at the moment.


The real scope of this government order in relation to video surveillance equipment is unknown, specialists point out, because Hikvision or Dahua products are present in the vast majority of buildings and public spaces around the world, since their products They are the benchmarks in this sector and practically all video surveillance systems are designed and manufactured in China. The market share of video surveillance products manufactured entirely in the United States is minimal.

The countries allied with the United States are very upset with the Inflation Reduction Act (IRA), because it subsidizes only the manufacturers of electric and hybrid vehicles in the United States and is against the free trade agreement of the WTO

The 2020 ban on installing new Huawei and ZTE network equipment in the United States had little impact, because major US carriers had not installed Chinese telecommunications equipment before and T-Mobile US, a subsidiary of Germany’s Deutsche Telekom, was told prohibited from doing so when granting the new license. Only the local operators have encountered problems by not being able to install more Chinese equipment and having to replace the existing ones, despite receiving federal subsidies for the replacement, because they were cheaper and with better support than those of Ericsson or Nokia, according to what they said in Your day. The ubiquity and lack of good alternatives to Hikvision or Dahua products raises questions of feasibility if the order is too strict.

More trade tension between the US and China

In any case, the extension of the Secure Equipment Act by the FCC only increases the commercial tension between the United States and China, already highly stressed with the approval of the Chips and Science Act last October, which, in turn, is a tightening of the executive orders issued at the time by Donald Trump, which prohibited the Taiwanese company TSMC from manufacturing chips for Huawei, despite the fact that the designs were from Hi-Silicon, a Huawei subsidiary, among other measures, which caused Huawei to will cease to be one of the top three smartphone manufacturers in the world.


The order expanded by Joe Biden prohibits any semiconductor manufacturer from selling its products to Chinese companies if American design equipment or software is used for their production and, of course, the measure affects all semiconductor manufacturers in the United States. Intel and Micron, two companies based in the United States but with large semiconductor factories on Chinese soil, have been granted a one-year extension, without knowing when it expires, so they can revamp their facilities. The same has been done with the large TSMC, Hynix and Samsung factories on Chinese soil, without knowing very well what will happen to the future of these large complexes, which must periodically update their production equipment to stay at the top. .


US makers of semiconductor manufacturing equipment, such as Applied Materials, KLA and LAM Research, and chip design software are seeing their revenues and profits, as well as their share values, plummet as their large The market in recent years was precisely China, since it was the main buyer of design equipment and tools. The United States is also putting pressure on Dutch companies ASML and ASM International not to sell chip production lines to Chinese companies.


ASML is the world’s leading and only extreme ultraviolet lithography (EUV) chip maker, supplying TSMC, Samsung and Intel. ASM International, also Dutch as ASML, is very concerned about US pressure to not sell to China, as its manager told the Financial Times a few days ago. The United States is also trying to prevent Japanese manufacturers of equipment and materials from selling to China, just now that Japan wants to revive its chip manufacturing industry, very important thirty years ago, and the Chinese market is a great opportunity.


American high value-added chip designers are also very concerned about the closure of the Chinese market. Especially NVidia, whose server graphics cards and artificial intelligence are some of the most advanced in the world. NVidia designs and TSMC manufactures NVidia’s chips, with China so far being one of its main and most lucrative markets. NVidia has already said that this quarter it will lose in the order of 400 million dollars in sales due to the impositions of the Biden Administration. Experts wonder how companies that make and design US chips can become competitive again if they don’t have access to the Chinese market. Apart from the fact that the protectionist measure does nothing more than encourage China to be more self-sufficient in the production of semiconductors.

The EU, South Korea and Japan, against IPA

The European Union, with Germany and France at the helm, as well as Japan and South Korea, are very upset with the Inflation Reduction Act (IRA), a law that Biden approved last August and which in theory aims to stop the rise in costs of energy and materials and reduce climate change, but which in practice is based on improving the competitiveness of manufacturers of electric and hybrid vehicles in the United States by offering them incentives in the form of tax cuts and direct subsidies of up to 7,500 dollars per vehicle.


For several weeks Germany and France, mainly, have been pressuring the US Administration to drastically revise the approved law and are threatening to sue it before the World Trade Organization (WTO) because subsidies to US companies are totally contrary to the treaties international free trade In the coming weeks, until the end of the year, the exact conditions for receiving the subsidy should be known, which is why the EU, South Korea and Japan, the most affected, are trying to get the United States to reconsider its position before going to the WTO. Emmanuel Macron, visiting the United States until tomorrow, will also raise the issue with Biden, among other issues.


The IRA was designed as a measure to accelerate the transition to cleaner vehicles but also to encourage the US electric vehicle industry, creating more jobs, while reducing dependence on China, especially in the field of electric batteries. Although some details still need to be specified in order to receive the subsidies, the legislation intends for the vehicles to be assembled in the United States and imposes very strict measures for the supply of materials for electric batteries, the issue most in dispute with the allied countries of United States, because its exports of electric vehicles to the American market would lose competitiveness by not receiving subsidies. It is expected that the issue will be addressed next Monday in a bilateral meeting.


The alleged subsidy for electric vehicles manufactured in the United States exemplifies the difficulties that Biden is encountering to achieve a cleaner energy transition in his country, curb the strong international competition posed by China in all fields, achieve closer collaboration with his allies and, at the same time, make American industry more competitive.


This Wednesday, the person in charge of the Treasury, Janet Yellen, assured in a meeting organized by the New York Times that she wants to resolve her disputes with her trading partners for mutual benefit, while the person in charge of Commerce, Gina Raimondo, assured the same day in a conference at MIT that its purpose is to safeguard American technology and ensure its economic competitiveness and promote international trade and investment in areas far removed from national security interests and the core of the United States economy, according to information from Wall Street Journal.


Raimondo’s policy of selectively promoting US foreign trade and investment abroad is one of the four pillars of her policy. The other pillars of it are to promote the innovation and competitiveness of his country in topics such as semiconductors, green technologies and infrastructures; protect and enhance national security by controlling high-tech exports and internal and external investment and, fourth, working with allied countries to promote shared values ​​and cooperate in supply chains.


For the moment, what the United States is doing is, in the opinion of many observers, altering the situation of the world telecommunications and semiconductor market, with significant tensions in the supply and supply of chips in the latter case, without the United States for the moment get a lot of benefits. For some, it has managed to further strain trade relations with China and anger its allies with its protectionist practices, without necessarily improving its international competitive position vis-à-vis third parties.