Global stocks slumped today after Google blocked parts of its business with Huawei, sparking fears of an escalation in the trade war between the US and China.
Google today confirmed it had suspended Huawei’s access to its Android operating system after US President Donald Trump blacklisted the Chinese company over fears it could be a vehicle for state-sponsored spying.
The move, which could cripple Huawei’s global business, sparked a tech stock sell-off, dragging the Nasdaq down 1.2 per cent in early trading. The New York Stock Exchange FANG+ index, which tracks the tech sector, fell more than 2.5 per cent.
The Google block jangled nerves at a string of other Huawei suppliers, which also halted trading with the Chinese firm.
Chipmakers Intel, Qualcomm, Xilinx and Broadcom all told employees they will not supply Huawei until further notice, Bloomberg reported, while phone parts producer Lumentum confirmed it was halting shipments to the firm.
German semiconductor firm Infineon also suspended trading with Huawei, according to Nikkei Asian Review, suggesting Washington’s crackdown on the tech firm could have implications beyond the US.
But the order was scaled back late this evening, as the US commerce department created a temporary general licence giving businesses until 19 August to prepare for the new measures.
The Philadelphia semiconductor index, made up of firms that design, distribute and manufacture semiconductors, slumped three per cent, compounding losses caused by a slowdown in smartphone sales and putting it on track for its largest monthly drop since the financial crash.
But the turbulent trading was not restricted to the tech sector, as investors feared an escalation in the ongoing trade war between the world’s two largest economies.
The FTSE 100 closed down 0.5 per cent, while Germany’s Dax and France’s benchmark Cac 40 index fell 1.6 and 1.5 per cent respectively. China’s CSI 300 and Hong Kong’s Hang Seng also closed in the red.
“Not being able to supply Huawei, one of the world’s largest telecom providers, will hit the US as well as China,” said Fiona Cincotta, senior market analyst at Cityindex.
“The potential impact on the US economy and the global economy as a whole as the two sides dig their heels in deeper is unnerving investors.”
Huawei has insisted a ban will have minimal impact on its future growth, and the firm has been developing its own operating system as a contingency plan in case of a ban. The company has also been exploring options for alternative chipmakers and suppliers.
“We will continue to build a safe and sustainable software ecosystem, in order to provide the best experience for all users globally,” the company said in a statement.
But the move could leave millions of future models of Huawei smartphones without access to Google apps such as YouTube and Google Maps, while existing models would not receive updates from Android.
Annette Zimmermann, research vice president at Gartner, told City A.M. the Google ban puts 50 per cent of Huawei’s smartphone at stake, as the firm sold half its units outside China in the fourth quarter last year.
“It would certainly be detrimental to Huawei’s long term plan to become number two or number one smartphone player in the world, should the situation remain as is,” she said.
“Trump’s announcement of restrictions on telecoms suppliers, aimed indirectly at Huawei, indicates the probability of a trade deal in the short-term is remote,” said Alastair George, chief investment strategist at Edison Group.
“We suspect the actions of the US will have caused significant antagonism within China’s administration and have created an environment hostile to any formal agreement.”