China’s biggest phone manufacturer is running out of friends. Google, Qualcomm and ARM have all reportedly cut ties with Huawei, leaving the company scrambling for partners in the wake of a presidential order. It’s not clear how Huawei will respond to the new blackout, but it’s likely that the company will do everything in its power to reestablish those supply routes. And if the Huawei contests the order in court, as is likely, the resulting legal fight could test the limits of the president’s power over international trade.
Huawei’s recent problems started with a national emergency declared last week by President Trump, which gave the Secretary of Commerce the power to block information technology transactions deemed national security risks. The order, reportedly under consideration for a year, had one obvious target: Huawei, the Chinese telecommunications firm already branded a security risk by United States intelligence. dealing a potentially fatal blow to the Chinese company’s smartphone business.
But the most remarkable part of the order is how far it goes beyond any one company or transaction. Unlike similar actions in the past, Trump’s order gives the Commerce Department broad power to stop any foreign players in a massive industry from doing business with American companies. And given China’s central role in electronics manufacturing, much of the electronics industry could be vulnerable to a similar order.
According to Alan Rozenshtein, a law professor at the University of Minnesota, it’s too early to tell how the executive order will be used beyond Huawei itself. Presidents declare national emergencies for a multitude of reasons, so giving the Commerce Secretary the power to block trade is “not an unreasonable” use of an executive order. But the order could theoretically be used for any number of questionable purposes — to crack down on a company for a matter unrelated to national security, for example.
Huawei has claimed the order was a ploy to punish China as trade negotiations intensify, and if the facts bear that out, they could make the case that enforcement of the order has become unreasonable. Huawei has already sued the Trump administration over a prohibition on government use, and after the executive order, suggested a ban would raise “serious legal issues” — a not-so-veiled suggestion that it could be willing to take legal action again.
The wide scope of the order could also give Huawei room to push back. Instead of stepping in over a single transaction or company acquisition, the executive order effectively blacklists Huawei, as well as any information technology company deemed a potential threat in the future. The order puts every Chinese tech company — and US company working with them — on notice, telegraphing a message that the United States is willing to shut them out of the American market.
Charles Skuba, a professor at Georgetown University’s McDonough School of Business, says there’s little precedent for such a broad order. Usually, if the US sees a potential national security threat in a transaction, it takes a more targeted, narrow approach: he points to actions under the Committee on Foreign Investment in the United States, which is used to examine transactions and is more focused than the powers the executive order gives. If the US was worried about specific technology being sold to Huawei, it could have used the CFIUS process, as the Obama administration did several times in cases of Chinese investment.
But instead of blocking a single deal, or icing out a single company, the Trump administration has gone further. “This is a broader ban that basically says all activities of these Chinese companies — sales of their equipment, acquisitions of equipment from them — basically are subject to this ban,” Skuba says. “It’s much broader.” Whether it’s irresponsibly broad remains to be seen.
Rozenshtein says Huawei could take action on a number of legal fronts. The company might argue in a lawsuit that the administration failed to properly consider the effects of the order — that they were “arbitrary and capricious” in their decision-making. They might also fight on constitutional grounds, arguing that the order is so broad, and gives the president so much power, that it’s unlawful.
Still, in a largely unprecedented situation, it’s tough to predict how well Huawei would fare. Companies have made some challenges to similar orders, like Obama’s 2012 wind farm order, but a judge ultimately dismissed most of the claims in that case, and any challenge may raise thorny questions about executive power. Rozenshtein says he’s skeptical judges would be receptive to the idea. “The courts have upheld incredibly broad use of presidential discretion for decades and decades,” he says.
Even if Huawei loses the legal fight, there may be political repercussions for moving so aggressively. As Huawei is fond of pointing out, the US has produced no public evidence that the company is an active national security threat, and many have raised questions about why providing components to a phone manufacturer poses a threat to US interests. The Washington Post editorial board has already called for more scrutiny of the order, saying the Trump administration “owes the public answers” about the move.
In the meantime, the decision will have wide-ranging repercussions, as American companies ponder who might be added next to the list. “If I’m a US company,” Skuba says, “I look at this national emergency ban, and it says I should be very careful to do business with any companies that have significant interlocking relationships with China.”