Years after the US first imposed trade restrictions against Huawei, the government’s strategy to restrain the Chinese technology company remains unclear. By mid-2019, after months of US pressure and restrictions, Huawei found its supply chain for computer parts and software under siege, so it has actively pushed forward the localisation of its supply chain, continually increasing the domestic substitution rate of phone components. Before restrictions, Huawei relied heavily on companies like Intel, Qualcomm, Broadcom, and TSMC. Post-restrictions, Huawei has increased partnerships with domestic Chinese suppliers like SMIC for semiconductors and BOE Technology for displays. By 2023, the Mate 60 series achieved a domestic substitution rate of 90% of components and circuit boards to overcome the US restrictions. In December 2024, Huawei officially unveiled its Mate 70 series, the latest flagship smartphone for the Chinese market.

The US semiconductor export controls to China could result in annual sales losses of up to $83 billion for US semiconductor companies, along with a reduction of 124,000 jobs (American Chamber of Commerce). To overcome this, some US semiconductor giants like Intel and Qualcomm have opposed the tightening of chip export controls, and Nvidia continues to design chips for the Chinese market while adhering to export control standards. However Huawei have recently announced they want to grab the market share in AI chips from Nvidia.

In reaction, Huawei has shifted to Chinese suppliers and partnered with local chip manufacturers, as well as focusing on developing its HarmonyOS operating system as an alternative to Android. The company has expanded into non-smartphone areas such as cloud computing, enterprise solutions, and smart automotive technologies (with a significant presence in Mexico). Huawei has also invested in AI, 5G and semiconductors, integrating the supply chain into Huawei owned companies or a Chinese network of other companies.

However there are some disruptors, competing with even the established Chinese companies. On 27th January, the Chinese start-up DeepSeek AI launch saw a trillion dollars wiped off the world’s biggest tech companies share prices. Nvidia was the hardest-hit amongst American big tech related to AI, with Samsung in Europe down more than 20%. The DeepSeek AI has been produced quickly and cost effectively, going against the idea that enormous spending and the processes followed so far are the way to generate the best results and returns from AI.

Trump is expected to reveal more details on which specific tariffs will be placed on imports from China, Canada, and Mexico on 1st February 2025, in a possible attempt to close a ‘loophole’ where Chinese companies can avoid tariffs by expanding in Mexico. Over the last few years Chinese investment has exploded in the country. In November it was announced that Foxconn is building a massive factory in Guadalajara, Mexico, to assemble Nvidia’s artificial intelligence servers. Chinese electronics manufacturers Lenovo and Hisense have also been making announcements about building factories in Mexico.

It is clear that the continuing tariffs and export controls will mainly hurt the US, not China, who will still have an advantage and race even further ahead. It would be better for the Trump administration to focus on consolidating its remaining technological leadership.

Author: Julia Swales

Source: Ti / Foundation for Future Supply Chain

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