 Hello and welcome to NewsClick. Today we look at the latest developments in the trade war the United States launched against China last year and which escalated recently with the sanctions and telecommunications manufacturer Huawei. To talk more about this we have with us Prabir Prakash. Hello Prabir. Prabir, so we have seen that China is now planning a list of unreliable foreign companies which basically damage the interests of Chinese companies and this basically also indicates that China is not going to take the actions against Huawei lying down and the state is going to support Huawei as well. So to start out with how do you see the, before we go into the details of the technical details so to speak. So at a general level how do you see things spanning out in the next couple of years? I think we are no longer in the phase of a trade war. Trade war is where it started but with the 5G Huawei and later on with the sanctions list, entities list as they seem to be calling it which seems a very innocent nomenclature shall be said but it means a whole host of technologies plus a lot of components, software, systems are no longer available for Huawei. Now Huawei is one of the biggest Chinese companies particularly the area of telecom and mobile phones, servers, a whole bunch of equipment. So I don't think that Chinese can afford for it to sink. So therefore this is a kind of crossing of the Rubicon if you will where we are escalating beyond what a trade sanctions against a set of goods. Of course it might have violated the WTO framework but leaving all of it out. We are now getting into what is essentially the real battle that is taking place between China and the United States which is over the technology markets of the future and the fact that for the first time the Chinese seems to be threatening the lead that America and its allies had, the United States and its allies had over the tech space and 5G technology was only a start of that but there is also the threat of artificial intelligence and also the entire shall we say the digital sphere in which Huawei was also maintaining its lead or at least enlarging its capabilities in various areas. So I think Huawei is only a test case and the real battle is over the digital sphere and the integrity of the digital sphere in which the 5G was just a start with the cell phones also coming under attack essentially and that is coming under attack because of the sanctions for both software and hardware. I think the battle has really become much larger. Chinese have indicated two possible lines of attack. One which they have already indicated is their equivalent of the entities list which is unreliable suppliers list. Those who have accepted American sanctions and therefore are not fulfilling what they think are contractual obligations and the other which they also have raised at least the flag that they could retaliate in a different way and not in the electronic space or the digital space but they could retaliate against rare earths of which almost 80% of the manufacture is done by Chinese companies and though other sources of rare earths do exist in different parts of the world to make it operational within the short time which is what would be required is also going to be difficult. So that could inter dislocate also the United States. So I think we are really seeing both the breakdown of the shall we say the post WTO order. We are also seeing the start of tech wars which we haven't seen and we could foreseeably see the breakup of what is called the global supply chain which assumes the supplies are available seamlessly over a number of countries. I think that could also break down and you know the United States and the Chinese the economies are tightly interlocked. They exchange a lot of goods with each other services with each other. There is a lot of round tripping. Equipment which comes from the United States is assembled in China goes back to United States iPhone being a part of that. So this breakup of the supply chain is going to affect both. So I think we are in that shall we say uncharted waters of a trade war tech war and also breakup of the global supply chain along with the trade war the dismantling virtually optional I say the WTO order because if China and the United States the two biggest ones fight in the global market in a trade war the WTO really has very little meaning. Right and one of the things we looked at a news click is that how this phase is a new one because it marks not only locking Huawei out of certain say areas of the markets but also blocking its core supplies as well and a lot of this is actually centered around hardware. So chip manufacturers. So could you talk a bit about what are the key players and how they're going to be affected by the scenario? You know when it started it appeared that Google was going to be the key problem and that because the Android operating system uses of course Google's Android core there was always a possibility you could already use an Android fork and develop your own Android version. The problem that was foreseen as a key one was the fact that Google has its Play Store. So a lot of the key features which make the mobile phone so useful are locked out of the Android core but available only to Google Play Store therefore it becomes a kind of cloud function which again Google controls. So in some sense the lock-in of technology in software moved from the cell phone itself or the computer as Microsoft did earlier but moved into the cloud which again Google controlled because of the cloud control it exercised. So this was seen to be the problem. There it appeared that Huawei has various options that it could A, in the Chinese market it is not affected because Google is not there anyway. It could use the Chinese apps reskin them making more friendly for other countries not Europe not United States but at least other countries and thirdly it could also move its entire ecosystem create a parallel ecosystem which anyway Apple has done which Amazon is trying and which therefore could be accelerated if Huawei also comes into this market and tries and develops its own ecosystem which would affect also Google in the long run. So these are all options available but the latest sort of sanctions which has one unforeseen consequence at least we had seen a lot of this. We had thought they are vulnerable to Qualcomm chips not being available Intel chips not being available which of course would impact their 5G manufacturing capability but also certain kind of production system they have which is the basically the servers other hardware including of course the cell phone itself. What has now transpired the ARM processors which is owned by Softpack Japanese company it is essentially started as a British company still is headquartered in Britain that has come under the notice of US entities list on Huawei because it appears that more than 25% of its software comes from the United States and therefore the entities list says any quantity above 25% of US content has to be also brought under this entities list discipline so to say. So ARM has said it is this continuing supply of any fresh ARM software I will come to what it means design software etc to Huawei. So effectively what it has transferred still remains but any fresh intellectual property transfers in terms of licenses and software to develop next generation of processes is not there. Now before we come to what that really is one must understand that almost everybody in the world today is shifting away from chips which are manufactured by A, B or C companies Intel still remains a very large supplier of chips but the processor chips earlier AMD was supplier has almost been given up by everybody what they have done is they have taken the ARM architecture the ARM software as it were and built their core processes around that. So it is almost entirely ARM which dominates today what is called the system on a chip platforms and almost all the cell phones have the system on a chip which is a variant of the ARM processor. So Qualcomm which also manufactures its signal system on a chip it is built this entire set of chips on the ARM processors there are Samsung has built again on the ARM processor Huawei has also built its core system around the ARM processor Apple also builds it around the ARM processor but of course Apple has its own foundry so to say that it takes it builds its own processors it has its core design capabilities and that operates like a closed system. So if we take all of this without the ARM processors what happens to Huawei is the key problem that is there and we can discuss that a little more in detail but this seems to be kind of existential threat to Huawei because if they do not get the further versions of ARM processors then they have to develop a capability alone which nobody else seems to have done which is actually this build series of new processors. So that is the key bottleneck that it is facing and they might have stockpiled they already have license for the current generation which can go in for some more time. So it is no longer a question of stockpiling chips the question is will they get frozen in time as it were not being able to develop cell phones mobile phones on the next generation of ARM processors because ARM essentially is saying that we will not be able to supply any new generation of software to you. So will it be kind of stasis for Huawei because how to get around this is something that we have to really see. So is there a way for Huawei to actually say overcome these restrictions that come out of ARM say imposing these sanctions or following these sanctions so to speak. You know this is really the imponderable as of now because Huawei has foreseen according to its chairman they have been foreseen that there will be an attack on Huawei. It is a question of when not if that is the position they have taken and certainly after the rest of the the CFO it has been very clear that Huawei was going was in the crosshairs and it was going to come under different kinds of sanctions. So it would be stupid to think that they have made no preparations did they just stockpiled chips is that the only preparation they made. So now high silicon the basically the body within Huawei it is a separate company but really part of the Huawei group they have been building the processors for quite some time. So there one of the lead persons in high silicon she has come out and said in a note to the company that we have known this is going to happen we always had a plan B where we would switch completely into our own internal designs. We have kept this as a plan B now that this has happened this will become a plan A. Now are the whistling in the dark were they actually preparing for it if you look at the budget this high silicon high silicon has it is a very large budget which the Huawei was spending and whether it was only for the purpose of building the chips around the chips or the converting the arm processes into chips designed into chips or was it something which also had a second line of defense we really do not know. They have been shall we say experts who have said no no this is all bullshit really did not have anything they do not really have anything they face an existential crisis but it also does make us think that maybe they will get a 2 year delay. 2 year is anyway the time they have because a current generation of processes on the which they go to release their next cell phone that still have not released it but that design they already have. So they have already got the license for that so I do not think that can be taken away from them. So that will survive in the market for at least a year to 2 years after which they are there in the danger of losing their shall we say high end of business the low end of the business the middle end of the business still continues but the high end of the business then could come under attack. So that is one part of it that they have about 2 years. Now if they do not do anything with the next 2 years then we are looking at what people say could be 4 to 5 years in which case Huawei will certainly fall behind. So that is the big shall we say question mark how much advance they already are in order to be able to switch away from the ARM processor and not only the ARM processor there are whole range of other equipment small small pieces they might require. So building the supply chain as I said this also the threat to the global supply chain they have to now build a completely safe supply chain for themselves. The European companies who do not have such the threats from the United States if they do not that they could still do business in China China is a very huge big market for them and therefore how the other parts of the world will shape up the sanctions is to be seen but I think this is the big open question does Huawei does the Chinese state have the ability with the next 2 years to be able to replace the ARM processors 2 years is a long time. So 2 years a lot may happen including this whole thing going away but certainly there is this threat that if they do not do anything then technologically they will be locked into the past and that will mean that Huawei as a significant player in the international market will not be there. And you also mentioned the question of foundries I believe Taiwan and South Korea have 2 of the most important foundries so how do they play into this equation at the same time. Again at the moment it does not look like the major silicon foundry which is outside Samsung. Samsung is a competition also Taiwan and Samsung are the only 2 companies which have the 7 manometer technology today to be able to make chips which means less power consumption packing more devices onto a chip and so on. So that it does not seem is affected the China Taiwan is company seems to indicate that it is really not affected by your sanctions so that may not be a problem. So at the moment it does not look like that there is a threat to the their ability to get 7 nanometer technology which is the latest technology in the market to develop build its processors and other things chips that it may require. So that that seems to be at the moment safe but given the strength of the US shall we say power in the global arena can they force the Taiwan Taiwan is company also to back off we do not know. So those are all the imponderables in the equation but you know the Chinese are also not without any shall we say retaliatory capacity as you talked about they have built a list of unreliable suppliers. Now already the chip manufacturers like Qualcomm, Intel and others are likely to lose about 11 billion dollars of what Huawei was purchasing from them. What about the other Chinese companies? So if this shall we say the tech wars go on I am not talking trade wars if the tech wars go on then there is a risk that a huge number of companies will also be affected they are not retaliating against Apple which people thought is what they will retaliate against because at the end of it at Apple the value addition in China of Apple is very very low. Though people think the 270 dollars per cell phone goes to Apple which is the landed cost of the Apple phone in the United States but out of that only 8 and a half or 9 dollars is really what China contributes its value at. Most of it is components which have come from other places including the United States. So that is a bogus argument and Apple is something that a lot of the elite in China like to have either the iPhone or the Macs. So I think what is more likely is what they have called as unreliable entities they are in version of the entities list and if they start looking for alternate suppliers for all of that which is what I was talking about is splitting the global supply chain then American companies are star will start to hurt also and I could see already the trade predictions which says entire electronics manufacturing any company which is in that space known by the stocks because there is a complete uncertain future about them. So uncertainty over the global supply chain means uncertainty over procurement and prices both are going to continue. So I think China is not without cards rare earths is one of them that that's something they could retaliate against which will affect also the US defense programs the space programs. So a lot of important programs is including storage batteries and so on but most of all I think we are seeing that technological independence is now back on the table and countries like India as well as other countries have to European Union as well has to decide that either it remains it strategically independent or it joins one block or the other and if you want to do you want to retain strategic independence then it is necessary not only to have economic independence which almost everybody recognizes but also technological independence which is something people thought was some which belong belong to the 19th maybe first half of the 20th century but not end end of the 20th century not the beginning of the 21st I think we are back in that range. Thank you for being that's all we have time for today keep watching Newsclick.