Trump’s China Feud Threatens 5G Growth in U.S.

The Trump administration’s offensives aimed at frustrating the 5G ambitions of China and mobile-technology giant Huawei Technologies Co. might end up impeding America’s wireless ambitions, too.

Recent White House actions land as China and the U.S. race to launch the superfast cellular networks, with Huawei and its Chinese customers targeting a nationwide 5G rollout next year.

A U.S. Commerce Department measure,designed to hinder Huawei from buying critical components, might make it harder for American and European telecom-equipment makers to buy certain supplies as well, Western industry executives said.

In addition, the Trump administration’s new 25% tariffs on Chinese goods are already making it more expensive for Western companies with Chinese factories, including Silicon Valley’s

Cisco Systems
Inc.,


CSCO0.33%

to send products to the U.S.

Together, this pair of actions could make it more expensive for U.S. wireless carriers such as

AT&T
Inc.

and

Verizon Communications
Inc.

to buy the cellular-tower hardware, switches and routers needed for 5G.

“The service providers would be buying that stuff,” said K.C. Swanson, global-policy director at the Telecommunications Industry Association, a trade group representing telecom-equipment makers that do business in the U.S. She said higher costs could lead carriers to charge customers more for wireless plans, making 5G less attractive for consumers.

Commerce Department representatives didn’t respond to a request for comment over the weekend.

The potential impact on U.S. carriers and consumers shows how globally entwined the internet and telecom sectors are, despite the competition to roll out 5G. “When there are disturbances in the supply chain, it will impact the whole industry,” said Bengt Nordström, who runs Northstream, a consulting firm that helps wireless carriers buy equipment.

President Trump has said the U.S. must win the 5G race by becoming the first major nation to set up a wireless network using the new technology. U.S. officials say 5G, which promises to zip gobs of data around networks much faster than today’s systems do, will providethe infrastructure for futuristic commercial and military inventions: driverless cars, flying battlefield drones, automated factories and web-connected pacemakers.

That potential—and Huawei’s prominence—worries U.S. officials, who have essentially banned Chinese equipment from U.S. wireless networks since 2012. Huawei is the world’s biggest telecom-equipment company and holds more patents for 5G standards than any other company. U.S. officials say Beijing could order Huawei to tap into the hardware or software it makes to spy or take control of internet-connected objects. Huawei and the Chinese government say such a thing would never happen.

The Commerce Department order earlier this month made it difficult for U.S. suppliers to sell components to Huawei, thoughsome companies have a temporary exemption. If those suppliers lose a chunk of revenue from Huawei, they might have to slow operations to stay profitable.

If suppliers slow operations, the Western companies that also buy from such suppliers might face a components shortage. “It’s not like the suppliers can instantly swap customers,” said Mr. Nordström, the consultant and a former Ericsson AB executive.

An official at one Silicon Valley supplier of Huawei said a slowdown in its manufacturing was possible and could result in short-term revenue losses. But the supplier expects rival telecom-equipment makers, such as Cisco, Finland’s

Nokia
Corp.

, Sweden’s Ericsson or even China’s

ZTE
Corp.

, which currently doesn’t face the same Commerce Department restrictions, to step up purchases of popular components that Huawei can’t buy.

The Western industry executives say Huawei rivals are positioned to buy more components from affected suppliers and don’t expect major disruptions.

While U.S. officials consider the actions against Huawei a national-security matter, the U.S.-China trade feud is already making the American 5G rollout more expensive. Earlier this month, Washingtonraised from 10% to 25% tariffs on $200 billion worth of goods, including major telecom equipment.

Earlier this month, executives at Cisco, a giant maker of routers and switches, said they have shifted some, but not all, manufacturing out of China since last summer, when the 10% tariffs were introduced. Chief Executive Chuck Robbins said that after the tariffs went up to 25%, the company raised prices for some products.

Representatives for all four major U.S. carriers—AT&T, Verizon,

T-Mobile US
Inc.

and

Sprint
Corp.

—declined to comment for this article.

Washington’s campaign might give China’s 5G rollout bigger challenges, the industry executives and analysts say. China’s three major state-owned telecom providers get at least 70% of their equipment from Huawei and ZTE, the executives said.

A U.S. Chamber of Commerce analysis of aChinese government plan to upgrade industriessaid Beijing set a 2020 goal of having 75% of its mobile-systems equipment produced domestically.

Huawei founder Ren Zhengfei said in an interview last week with Chinese media that the company had expected such obstacles from Washington and was prepared. Huawei had previously said it had stockpiled components for such a scenario.

“Even if Huawei has stockpiled critical components, these will run out,” said Bernstein analyst Chris Lane, “and they are unlikely to be able to develop substitutes for all of these in a one-year time frame.”

China’s Ministry of Industry and Information Technology, which oversees telecommunications in the country, didn’t respond to a request for comment. Neither did

China Mobile
Ltd.

, a state-owned enterprise that is the largest wireless carrier by subscribers in the world. Another state-owned carrier, China Telecommunications Group Corp., said in a written statement that it buys from both domestic and foreign telecom-equipment manufacturers and “will pay close attention to the development of the situation.”

—Sarah Krouse and Drew FitzGerald contributed to this article.

Write toStu Woo at[email protected]

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