Washington Insider-- Friday

More Pressure on Huawei

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Trump Touts Farmer Aid, Ethanol In Iowa Campaign Stop

President Donald Trump on Wednesday spoke at a “Make America Great Again” rally at the Des Moines International Airport, talking up the administration's actions on ethanol and on farmer aid money. “Nobody has ever done (more) for Iowa and the Farm Belt and the farmers and all,” Trump declared. “I saved ethanol.

Ethanol is safe.” Trump told the packed crowd, "You have a tremendous influence and a tremendous power and you've never let me down."

Democratic presidential nominee Joe Biden and Trump were tied at 47% among likely voters in Iowa, according to a Des Moines Register/Mediacom poll released September 22. During his speech Wednesday, Trump also cited a poll released earlier in the day by Focus on Rural America that showed him leading Biden by six percentage points, 50% to 44%.

Trump made a direct appeal to the state's farmers, saying that he was responsible for $28 billion in aid designed to help offset damage stemming from his trade war with China. “I hope you remember that on November 3,” Trump said.

Mnuchin Said More Needs To Be Done On China Trade

While there has been progress in rebalancing the trade relationship with China, Treasury Secretary Steve Mnuchin said Wednesday that still more needs to be done.

“China has a large, growing middle class, over 300 million people. If U.S. companies and U.S. workers can compete for that business, it's one of the largest opportunities,” Mnuchin said in remarks to a conference conducted by the Milken Institute. “If we can't compete for that business fairly, then they should not have free access to the U.S. system. This needs to be a fair, reciprocal trading relationship.”

However, Mnuchin did not offer any indication of what would be pursued with China on trade in a second Trump term in office.


Washington Insider: More Pressure on Huawei

Bloomberg is continuing to following closely U.S. efforts to limit Chinese competition in global communications technology markets and is reporting this week that Huawei Technologies Co., already being squeezed out of Europe's vast market for the next generation of telecom equipment, is under siege in another fast-growing business: cloud computing.

U.S. officials have been lobbying European lawmakers and industry leaders to use Western companies – while shunning Huawei – to build data centers and offer infrastructure to handle the growing tide of information.

Now, as part of a European tour last week, State Department Under Secretary Keith Krach met executives including Deutsche Telekom AG CEO Timotheus Hoettges and Meinrad Spenger, head of Spanish telecom carrier MasMovil, “to urge them to ditch Chinese vendors of cloud infrastructure” on data-security concerns.

“Look at this as an extension of that 5G,” Krach said. “Clouds are really important, whether it's in the service cloud or in data centers themselves. This is a big deal.”

Bloomberg is noting that increased pressure from Washington is affecting one of Huawei's fastest-growing businesses. China's largest technology corporation by sales has in past years has accumulated an impressive roster of clients, including Deutsche Telekom, France's Orange SA and Spain's Telefonica SA. It's now seeking to expand its reach to customers such as oil companies, power grid operators and logistics providers.

While Alibaba Group Holding Ltd. operates a larger cloud business and WeChat-operator Tencent Holdings Ltd. isn't far behind, Huawei appears to be more vulnerable given the U.S. administration has managed to convince some governments in the region to exclude its 5G networking gear. Europe's cloud infrastructure is a $12.4 billion business that grew 33% this year from 2019, according to market researcher IDC. U.S. players dominate, led by Amazon.com Inc.'s AWS and followed by Microsoft Corp., IBM, Google and Oracle Corp.

“Chinese players like Alibaba and Tencent are not making huge inroads into the European market,” according to IDC's Carla Arend.

As European telecom firms are seen as slowly turning away from Huawei for their 5G infrastructure, U.S. pressure is seen as “already working in the cloud,” Bloomberg says. Orange CEO Stephane Richard told analysts in July that the company's cloud built on a Huawei infrastructure was “likely no longer relevant.”

“Clearly today, the Huawei Cloud infrastructure is not necessarily the one we're going to be promoting in Europe,” he said. Orange's Huawei-built cloud is currently used by the European Space Agency and car-maker PSA. Just days before Richard's call with analysts, Orange signed a cloud deal with Google.

Deutsche Telekom declined to comment on its CEO's meeting with Krach and its cloud-business plans. The company, whose biggest sales come from its T-Mobile unit in the U.S., has cloud partnerships with Cisco, Microsoft, OVH and Amazon's AWS. It also has an offer based on Huawei infrastructure called “Open Telekom Cloud” for small and medium-sized companies.

While Huawei is struggling, U.S. companies are thriving, Bloomberg said. Nokia Oyj on Wednesday signed a five-year deal to move its IT infrastructure onto Alphabet Inc.'s Google Cloud. The U.S. provider also recently won a multiyear deal to store Renault SA's manufacturing data, marking the U.S. tech company's first major industrial cloud deal in France.

“Huawei is losing market share in Europe,” said Jim Lewis, Director of Technology Policy Program at the Center for Strategic and International Studies in Washington, DC. “I think its brand has been damaged. Their handset sales continue to do well, but in infrastructure they are being squeezed out of the developed world.”

U.S. sanctions also appear to have jeopardized Huawei's supply chain. A U.S. ban on chip sales to Huawei kicked in Sept. 15, disrupting its wireless, handset and cloud offerings. In 5G, the UK has imposed a full ban, while France has devised rules making it riskier for operators to use Huawei equipment, without banning it outright.

Telefonica, which retracted plans to use mainly Huawei for its 5G, sells a cloud application with the Shenzen company in Spain, Brazil, Argentina and Chile. It also has partnerships with Google, SAP and Microsoft. Krach cited Telefonica as one of the 50 telecom operators committed to the U.S. “clean network” plan.

Huawei is far from defeated in Europe, however. Last week, it opened an 8,000-square foot research center in an upscale Paris neighborhood. Local telecom champion Orange said it will selectively keep parts of Huawei's infrastructure in its offerings.

But for now, the U.S. is maintaining pressure on its European counterparts.

“All these companies that have cloud businesses and data centers that use Huawei, they understand that in terms of 5G, sophisticated smartphones and their servers, they are going to be out of chips,” Krach said after his eight-country European tour.

So, we will see. It is increasingly clear that the administration is continuing its pressure on China and that nation's push into global technology markets – and that the administration appears to be willing to continue to offer expensive subsidies for agricultural producers who are on the front lines of that trade fight. Still, these battles tend to be long and contentious and should be watched especially closely by producers as they intensify, Washington Insider believes.

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