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Silicon Valley Puzzled as Trump Eases Restrictions on US Sales to Huawei

A man uses his smartphone outside of a shop selling Huawei products at a shopping mall in Beijing, Wednesday, May 29, 2019. Chinese tech giant Huawei filed a motion in U.S. court Wednesday challenging the constitutionality of a law that limits its…

Selling low-level chips used for consumer phones may be safe, but not technology for buildiing out Huawei's 5G network.

U.S. technology companies are struggling to determine where they stand in regards to selling products to Huawei Technologies Company, the Chinese telecommunications giant, in the wake of President Donald Trump's concessions to China during the Group of 20 summit in Japan.

Trump announced last weekend that he had agreed to allow U.S. technology firms to continue to sell to Huawei, despite previously stated security concerns. On Tuesday, a White House trade adviser minimized what the administration had agreed to, saying the U.S. will "allow the sale of chips to Huawei and these are lower tech items, which do not impact national security whatsoever."

Adding to the uncertainty, Reuters reported Wednesday that a senior Commerce Department official told the agency's export enforcement staff this week that Huawei should continue to be treated as blacklisted.

Caught up in the uncertainty over Huawei's access to U.S. products are tech companies — particularly the semiconductor industry. Industry executives are waiting for more details from the Commerce Department about what can and can't be sold to Huawei.

An evolving policy

"As a legal matter, nothing has changed," said Kevin Wolf, a partner at the law firm Akin Gump and a former Commerce Department official who advises tech firms. But the tone has changed, he said. "The policy is still evolving."

In May, the Trump administration put Huawei on a banned list citing national security concerns related to its technology for the company's 5G — Fifth Generation — smart devices.

U.S. companies that want to sell technology to Huawei are supposed to apply for a license to do so. The administration has allowed exemptions until mid-August for U.S. mobile phone companies and internet broadband providers to work with Huawei on its existing products.

Meanwhile, some semiconductor companies such as Intel continued to sell to Huawei without a license or an exemption, according to the New York Times. The companies' rationale for doing so included that the technology exported was manufactured outside the U.S. or that the technology did not present a national security risk, the article said.

What's ahead

With Trump's latest announcement about Huawei, several scenarios could unfold in the short-term, say industry observers and advisers:

* Huawei comes off the Entity List — This is unlikely since the Trump administration built its case that the company represents a national security threat. The company has been caught stealing trade secrets and evading U.S. government bans on transferring technology to Iran. Huawei is also suspected of being an arm of the Chinese intelligence services, but that has never been proven by the U.S.

* Draw a bright line — The administration could allow the continuation of U.S. sales of technology to Huawei — aimed at the Chinese conglomerate's existing consumers of phones but not for infrastructure equipment or building its 5G networks. The Entity List could be revised to refer to particular technologies.

Such a bright line would likely allow the sale of chips but not software or other technology that could help teach Huawei how to design the technology, said James Lewis, a senior vice president at the Center for Strategic and International Studies. "You wouldn't want to see production equipment go, or the design information go," he said.

* Make applying for a license case-by-case — The presumption when applying for a license to sell to Huawei now is that it will be denied, said Paul Triolo, head of geotechnology at research firm Eurasia Group. Now there may be a move to tell U.S. firms seeking to sell to Huawei to apply for a license and it will be approved, unless there is a national security risk, he said.

What the president's announcement about Huawei showed is that Huawei's fate — and that of its customers and the global supply chain that sells to it — are caught up in the trade talks between Washington and Beijing.