Google’s ban on Huawei has markets worried about how a US-China trade war could change the global economy.

US stock markets dropped Monday on concerns about global trade, after Google was forced to end Huawei Technologies’ licence for the Android operating system.

By the close of US markets on Monday, the S&P 500 Index had dropped 19 points or 1.75 per cent to 2840.2, with the technology sector falling more than double that.

Over the past 40 years, the US and Chinese economies have become closely enmeshed, particularly in technology products.

Markets now appear increasingly concerned that continuing trade tensions between the US and China will slow global trade and investment, and particularly the ability of US companies to build goods in China with Chinese-made parts. Apple, a prime example of such a company, saw its shares drop 3.1 per cent.

US President Donald Trump has expressed his belief in using trade restrictions to secure US aims, declaring in 2018 that in the right circumstances “trade wars are good, and easy to win”. Reuters on Monday quoted one Ohio-based portfolio manager as saying: “The further the trade war goes, the more escalation keeps happening.”

On Monday afternoon, the Trump administration issued a notice allowing US companies, including Google, to continue doing business with Huawei for three months, an apparent bid to contain the damage from the move.

Huawei is a global telecommunications technology leader and the world’s number two smartphone vendor. Its leading models are considered among the most advanced on the global market, though it sells only a small number of phones in the US.

It has been suspected of co-operating with Chinese security forces in ways that could allow its technology to be used for cyberwarfare.

Google’s cut-off will block Huawei from accessing future features of the world’s most popular smartphone operating system, and puts in doubt its future in the smartphone market outside China.

Google has not fully explained the decision, but it appears to be a result of the US Commerce Department’s decision earlier in May to place Huawei on its ‘entity list’, blocking it from buying technology from US companies without government approval.

“We are complying with the order and reviewing the implications,” Google told media outlets.
Current Huawei phones running Android will continue to have full functionality. “For users of our services, Google Play and the security protections from Google Play Protect will continue to function on existing Huawei devices,” Google said. But it is not clear how well existing Huawei phones’ core operating systems will be updated.

From August, Huawei’s access to Android will be restricted to the Android Open Source Project, a cut-down Android version that is less frequently updated and lacks access to many Google apps and services including the Google Play Store.

A spokesman was quoted in the Financial Times on Monday as saying that the company could roll out its own operating system “very quickly”.

But Huawei’s problems extend to hardware, with chipmakers including Intel, Qualcomm, Xilinx and Broadcom saying they would also cut off supplies to Huawei.

Huawei’s biggest partner in the Australian market is carrier Optus, although Telstra recently began offering its flagship P30 model.

Huawei said in a statement that it had made “substantial contributions to the development and growth of Android around the world”. It pledged to keep updating its phones’ security and provide after-sales services.