Trump administration cracks down on giant Chinese tech firm, escalating clash with Beijing

WASHINGTON - The Trump administration on Wednesday slapped a major Chinese firm with an extreme penalty that makes it very difficult for it to do business with any U.S. company, a dramatic escalation of the economic clash between the two nations.

The Commerce Department's Bureau of Industry and Security said it was adding Huawei Technologies Co. Ltd. to its "Entity List," known to some as the "death penalty."

This listing makes it virtually impossible for companies to survive once U.S. firms are discouraged from doing business with them. The Commerce Department said it had reached this decision because Huawei "is engaged in activities that are contrary to U.S. national security or foreign policy interest."

Huawei is the world's largest telecommunications equipment maker and has significant backing from the Chinese government. The Justice Department has accused it of violating Iran sanctions, among other things.

"President Trump has directed the Commerce Department to be vigilant in its protection of national security activities," Commerce Secretary Wilbur Ross said in a statement.

The move came right after President Donald Trump declared a "national emergency" and signed an executive order that expands the government's powers to protect communications networks.

Tensions between the White House and China have increased markedly in the past week. Trump on Friday began imposing 25 percent tariffs on $200 billion in Chinese imports, and China announced it was countering with large import penalties on $60 billion in U.S. goods.

Trump and Chinese leader Xi Jinping plan to meet in Japan next month, but many observers said a tremendous amount of economic damage can be done before the two ever sit down because the United States and China are considered the world's two biggest economic powers.

"This is a very, very big deal in terms of the entire relationship between China and the United States and ramping up this trade war," said Doug Jacobson, a Washington attorney specializing in export law.

The listing, which takes effect in the coming days, forces Huawei and its affiliates to obtain a U.S. government license to buy American technology.

Such listings are considered extreme steps taken in consultation with intelligence and national security officials, but Trump has signaled in the past that these sorts of decisions can be used as bargaining chips in broader negotiations. Last year, Xi personally requested that Trump remove a similar listing against the Chinese company ZTE, another telecommunications giant. Trump said he would do it as a personal favor to Xi, and after several weeks of discussions, the U.S. government allowed the company to survive with new limitations.

Huawei can escape the entity list if it satisfies the Bureau of Industry and Security that it has stopped the activities that ran afoul of the U.S. government. With the company's chief financial officer facing possible extradition to the United States on charges of violating U.S. sanctions against Iran, the company would probably have to pay civil and criminal penalties before getting off the list, Jacobson said.

Kevin Wolf, a former assistant secretary of commerce for export administration, said taken together, the two actions are a significant tightening of the vise. "This is going after a Chinese state champion," said Wolf, a partner at Akin Gump. "I suspect it will add greatly to the tensions."

Huawei smartphones use the Android operating system. With this listing, Google would be barred from exporting Android to Huawei unless it got a waiver from the Commerce Department. The chips in the phones are also made by U.S. companies, which would need waivers to sell to Huawei, said an official familiar with the matter.

Trump is seeking a number of concessions from Chinese officials as part of a broad trade agreement that he believes will increase U.S. exports and prohibit Chinese companies from stealing U.S. intellectual property. Trump has made clear that he is always looking for new sources of leverage in the negotiations, and he has tried to use the threat of tariffs and other penalties as a way to extract concessions.

Trump's national emergency declaration was part of a White House push to allege that foreign adversaries are exploiting vulnerabilities in U.S. telecommunications technology and services. It points to economic and industrial espionage as areas of particular concern.

The order authorizes Ross to block transactions involving communications technologies built by companies controlled by a foreign adversary that put U.S. security at "unacceptable" risk - or pose a threat of espionage or sabotage to networks that underpin the day-to-day running of vital public services.

The Commerce Department's listing cited the ongoing Justice Department investigation, which has alleged that the company violated U.S. sanctions against Iran.

Huawei officials did not have an immediate comment on the Commerce Department move, but in a statement earlier they criticized Trump's executive order.

"Restricting Huawei from doing business in the U.S. will not make the U.S. more secure or stronger," the company in the statement. "Instead, this will only serve to limit the U.S. to inferior yet more expensive alternatives. . . . In addition, unreasonable restrictions will infringe upon Huawei's rights and raise other serious legal issues."

Trump's executive order was expected nearly a year ago and comes as neither Washington nor Beijing appear willing to back down in their ongoing economic dispute. The National Economic Council, which had delayed the move for months, dropped its objection as trade talks hit an impasse, said an official familiar with the discussions who spoke on the condition of anonymity because they weren't authorized to comment.

It is consistent with an increasingly aggressive tack against China in which Trump has used tariffs as economic weapons, a tactic that he believes to be popular with his political base.

The move also boosts the administration's somewhat uphill effort to persuade allies and partners in Europe to bar Huawei, which officials say is beholden to the Chinese government, from their next-generation 5G wireless networks.

The order is not restricted to any one technology, such as 5G, but instead covers a swath of information communications technologies. That could invite a legal challenge from companies that believe it is overly broad, officials and analysts say.

Trump declared the emergency under the International Emergency Economic Powers Act, a 1977 law used by every president since Jimmy Carter to impose sanctions on countries such as Iran and Russia. It gives the president broad authority over economic activity.

Trump's executive order instructs the commerce secretary to develop an enforcement regime within 150 days and permits him to name companies or technologies that could be barred.

Should that happen, said Paul Rosenzweig, a former homeland security official in the George W. Bush administration, the banned firm "would assuredly sue." Rosenzweig, now a senior fellow with the R Street Institute, a policy group that advocates free markets, said congressional action to bar a specific company probably would have a better chance at withstanding legal scrutiny.

The order says that, although an open investment climate is generally positive, the United States needs to do more to protect the security of its networks. The idea is to have an "in case of emergency, break glass" authority, said one U.S. official who, like others interviewed, spoke on the condition of anonymity to discuss the order before its official release Wednesday afternoon.

And though the president already can veto proposed acquisitions of American companies by foreign buyers if he believes they endanger national security, the government lacks the authority to intervene in specific transactions deemed to pose such a risk.

"There are other levers we have, based more on contracting influence and power of the purse, but this would be more of an explicit exclusionary authority," said an official familiar with the matter.

Last year Trump signed a law that barred the federal government and its contractors from doing business with Huawei and several other Chinese companies on national security grounds. And the country's four major telecom carriers have pledged to the federal government that they will not use Huawei equipment in their networks.

But this new order, once implemented, would establish a national policy applying to commercial entities outside the U.S. government and permits the commerce secretary to name the countries and organizations subject to the restrictions, as well as the technologies at issue. The order also would permit the secretary to direct the timing and manner of how U.S. companies would cease using such equipment, officials said.

A number of rural carriers use Huawei in their networks as a lower-cost alternative to European companies such as Nokia and Ericsson. The Federal Communications Commission is preparing a rule that is likely to restrict federal subsidies for carriers that use Huawei gear, and the rural carriers have told the government that replacing Huawei is a cost they cannot afford.

A number of European officials in recent months have expressed consternation that the United States is pressing them to block Huawei from their planned 5G networks while not having officially banned the company. This order helps counter that objection, officials said.

Security officials say the issue is one of national security, not trade. But the two inevitably have become linked as China's quest to dominate advanced technologies in the global market has prompted significant concerns about the potential for espionage or sabotage.

Trump, unlike most previous presidents, has frequently relied on national security arguments in his bid to reshape U.S. trading relationships, demonstrating a willingness to stretch legal authorities beyond their customary bounds.

Last year, for instance, he cited a little-used national security provision of a 1962 law to impose tariffs on imported steel and aluminum. He also has ordered the Commerce Department to investigate doing the same on foreign-made automobiles and auto parts.

The national emergency declaration comes a day after a congressional hearing in which senators from both parties joined administration officials in calling out the risks of doing business with a company such as Huawei. They emphasized that the problem was less about the company than the authoritarian country whose system of laws, which lacks due process and transparency, it must obey.

"It's not about overseeing Huawei. It's about overseeing China," Sen. Lindsey Graham, R-S.C., chairman of the Senate Judiciary Committee, said during the hearing on 5G security.

"This is a single-party government," said Christopher Krebs, director of the Department of Homeland Security's Cybersecurity and Infrastructure Security Agency. "Everything that flows from the central party is a manifestation of their philosophy."