In this week’s installment of 3 Things we look at the broad reach of Huawei, the currency ambitions of Facebook and the global fight against cyberattacks.
Huawei
Your smartphone is like my couch. My couch is an Italian rip-off, made of Brazilian leather and assembled in China. Today, things are rarely assembled in one place from local goods — which is why attempts to target individual companies with trade restrictions can have far-reaching, and often unintended, implications.
On May 15, U.S. President Donald Trump signed an executive order banning U.S. firms from using telecom equipment made by companies deemed to be a national security threat. Shortly thereafter, the U.S. Commerce Department added Huawei to its “entity list,” which prevents U.S. firms from selling to Huawei without prior permission from the federal government. That also means foreign companies can’t sell to Huawei if their products are largely comprised of U.S. components.
U.S. intelligence agencies are concerned that Huawei has ties to the Chinese government and that Huawei equipment could be used to spy on the U.S. Though aimed largely at Huawei, these measures will also affect the tech and telco industries worldwide.
Huawei is the world’s largest supplier of telecommunications equipment and the second-largest manufacturer of smartphones; it employs 180,000 people in 170 countries, and more than 3 billion people use its products and services.
Huawei’s global supply chain is vast, with 13,000 suppliers from Asia, Europe and the U.S. Of these, 92 are considered core suppliers, and 33 of these core suppliers are based in the U.S. where Huawei spent $11 billion on parts and components in 2018.
Global supply chains could be permanently altered as Huawei and other Chinese tech companies turn to domestic and Asian suppliers, and as American companies stop using Chinese manufacturers and suppliers.
Huawei is one of the most important players in the global rollout of 5G technology, with more 5G-related patents than any other firm, according to IPlytics, a German-based company that tracks intellectual property development.
Closer to home, in the land of unintended consequences, it turns out that many small telecom providers in the U.S. are heavily dependent on Huawei equipment and these measures could cost them billions. Some may have to shut down altogether, leaving parts of rural America without cellphone or internet service.
And if China retaliates by banning Apple? Goldman Sachs analyst Rod Hall says this could cause Apple earnings to drop by 29 per cent, since most of its supply chain is located in mainland China (although China’s local economy and tech sector would also be hit hard). Back at home, Apple provides 2 million jobs across 50 states.
The U.S. is likely justified in its concerns about Huawei. But with Huawei’s global footprint, there will almost certainly be unintended repercussions.
Facebook cryptocurrency
Facebook plans to launch its own cryptocurrency, referred to internally as GlobalCoin, in about a dozen countries by the first quarter of 2020. Facebook will provide more details this summer, with plans to start testing it by the end of this year. In preparation, they’ve spoken to the US Treasury, central bankers and money transfer firms, as well as online merchants (who they’re asking to accept GlobalCoin in return for lower transaction fees).
Facebook is “hoping to disrupt existing networks by breaking down financial barriers, competing with banks and reducing consumer costs,” according to the BBC. One of its goals is to help people without a bank account send and receive money and make payments. Through banks and brokers, they’ll be able to convert existing currencies into GlobalCoin.
Existing cryptocurrencies, however, have experienced wild swings in value, which could make people hesitant to hold a balance of GlobalCoin. Reportedly, Facebook and its partners are hoping to mitigate this by pegging the value of GlobalCoin to a basket of currencies such as the U.S. dollar, the euro and the Japanese yen.
From a broader perspective, this move by Facebook highlights the potential threat posed to traditional banks by large tech companies — right down to currencies.
War games
No, we aren’t referring to Call of Duty. In June, 23 financial authorities from the G7 nations will take part in war games designed to simulate a multi-day cyber attack on a healthy international bank. Bloomberg reports this will be “the first cross-border exercise of its kind.”
We saw in 2008 how financial systems are interconnected — and how trouble can spread between banks and countries like wildfire. Hackers move faster than climate change, so let’s hope the bureaucrats have more success with this cross-border exercise.
Image: iStock.com/Tony Studio
Douglas Warren is a co-founder of Walmer Road Writing. He’s a corporate writer with expert knowledge of financial markets, economics, insurance and commercial real estate.