Federal Reserve Foresees No Interest Rate Hikes in 2019

The Federal Reserve left its key interest rate unchanged Wednesday and projected no rate hikes in 2019, dramatically underscoring its plan to be “patient” about any further increases.

The Fed said it was keeping its benchmark rate — which can influence everything from mortgages to credit cards to home equity lines of credit — in a range of 2.25 percent to 2.5 percent. It also announced that it will stop shrinking its bond portfolio in September, a step that should help hold down long-term rates. It will begin slowing the runoff from its bond portfolio in May.

Combined, the moves signal no major increases in borrowing rates for consumers and businesses. And together with the Fed’s dimmer forecast for economic growth this year — 2.1 percent, down from a previous projection of 2.3 percent — the statement it issued Wednesday after its latest policy meeting suggests that it’s grown more concerned about the economy.

With the prospect of no rate hikes ahead anytime soon, the stock market reversed losses it had suffered before the Fed issued its statement and was up modestly soon after.

The Fed’s decision was approved on an 11-0 vote.

Economic activity slows

Some Fed watchers say they think the next rate move could be a cut later this year if the economy slows as much as some fear it might.

In signaling no rate increases at all this year, the Fed’s policymakers reduced their forecast from two that were previously predicted in December. They now project one rate hike in 2020 and none in 2021. The Fed had raised rates four times last year and a total of nine times since December 2015.

The Fed’s pause in credit tightening is a response, in part, to slowdowns in the U.S. and global economies. It says that while the job market remains strong, “growth of economic activity has slowed from its solid rate in the fourth quarter.”

The Fed laid out a plan for stemming the reduction of its balance sheet: In May, it will slow its monthly reductions in Treasurys from $30 billion to $15 billion and end the runoff altogether in September. Starting in October, the Fed will shift its runoff of mortgage bonds into Treasurys so its overall balance sheet won’t drop further.

Change in direction

The central bank’s new embrace of patience and flexibility reflects its calming response since the start of the year to slow growth at home and abroad, a nervous stock market and persistently mild inflation. The Fed executed an abrupt pivot when it met in January by signaling that it no longer expected to raise rates anytime soon. 

The shift toward a more hands-off Fed and away from a policy of steadily tightening credit has encouraged the view that the central bank is done raising rates for now and might even act this year to support rather than restrain the economy. Though the U.S. economy is on firm footing, it faces risks from slowing growth and trade conflicts. 

All of which suggests that the Fed may recognize that it went too far after it met in December. At that meeting, the Fed approved a fourth rate hike for 2018 and projected two additional rate increases in 2019. Chairman Jerome Powell also said he thought the balance sheet reduction would be on “automatic pilot.” 

That message spooked investors, who worried about the prospect of steadily higher borrowing rates for consumers and businesses and perhaps a further economic slowdown. The stock market had begun falling in early October and then accelerated after the Fed’s December meeting.

Trump weighs in

President Donald Trump, injecting himself not for the first time into the Fed’s ostensibly independent deliberations, made clear he wasn’t happy, calling the December rate hike wrong-headed. Reports emerged that Trump was even contemplating trying to fire Powell, who had been his hand-picked choice to lead the Fed. 

But after the December turmoil, the Fed in January began sending a more comforting message. At an economic conference soon after New Year’s, Powell stressed that the Fed would be “flexible” and “patient” in raising rates — a word he and other policymakers have invoked repeatedly since — and “wouldn’t hesitate” to change course if necessary. 

Powell, appearing last week on CBS’s “60 Minutes,” denied that pressure from Trump had influenced the Fed’s policy shift. Private economists generally agree that a slowing economy and a sinking stock market, which eased Fed worries about any possible stock bubble, were more decisive factors. 

Stocks have rallied

After sharply falling in December, stocks have rallied and recouped most of their late-year losses in trading since the start of 2019, a rebound credited larger to the Fed’s easier monetary stance. 

Some analysts say they think the Fed won’t raise rates at all this year if the outlook becomes as dim as they are forecasting. 

That view is supported by the CME Group, which tracks trading in futures contracts on the Fed’s benchmark rate. It says traders now put the probability of any Fed rate hike this year at just 1 percent and project a roughly one-in-four chance that the Fed will actually cut rates by year’s end to help prevent a slowing economy from toppling into a recession.

 

 

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Even With Trade Deal, US Tariffs on China Could Remain

U.S. tariffs on China are likely to remain in place for a while, even if a trade deal is reached, President Donald Trump told reporters Wednesday. 

 

“The deal is coming along nicely,” the president said about the trade talks with Beijing, noting U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin would be heading to China within days to continue discussions.  

  

“We’re taking in billions and billions of dollars right now in tariff money, and for a period of time that will stay,” Trump said.

The president’s remarks indicated that Washington’s tariffs could stay in place until U.S. officials are convinced the Chinese are adhering to the terms of the agreement. 

 

“They’ve had a lot of problems living by certain deals,” the president noted on the White House South Lawn just before boarding the Marine One helicopter.   

China might accept a deal in which most of the U.S. tariffs are rolled back, according to Brookings Institution senior fellow David Dollar, but he said he expected President Xi Jinping would not accept any pact in which no tariffs were lifted. 

 

“It’s very hard for the Chinese president to agree to a deal that’s so clearly asymmetric. Chinese people are so active on the internet and social media, and President Xi will hear about it from the people if he makes a deal that looks bad for China,” Dollar told VOA.  

  

Tit-for-tat tariffs imposed last year ignited fears of a trade war between the United States and China, the world’s two largest economies, which annually trade more than a half-trillion dollars’ worth of goods.  

 

The value of Chinese products sold in the United States far outweighs the value of those sent to China, and that deficit alone represents about 80 percent of America’s overall trade gap in goods. 

A pillar of the Trump presidency has been reducing that huge gap by negotiating bilateral trade deals and rebuilding the U.S. manufacturing base.

Trump traveled Wednesday to an area in Ohio where General Motors is set to shutter a car assembly plant, affecting about 1,500 jobs and undercutting the president’s manufacturing revival message.  

 

“What’s going on with General Motors?” Trump asked during a speech. “Get that plant open or sell it to somebody and they’ll open it. Everybody wants it.”  

 

“Intervening to try to keep one factory open isn’t going to do much for the economy” at a time when manufacturing is declining as a share of the overall job market, said Dollar, of the Brookings Institution. “It’s a bad precedent for politicians to intervene like that.”  

 

A resident scholar at the American Enterprise Institute, Claude Barfield, agrees presidents should not intervene in individual corporate decisions.  

 

“The president is woefully ignorant about trade and this part of the economy. He thinks it does help. I don’t think it does at all help,” Barfield, a former consultant to the office of the U.S. trade representative, told VOA.  

The closure of the GM plant in Lordstown, according to a Cleveland State University study, will result in a total loss of 7,700 jobs in the region, including supply chain and consumer services employment tied to the auto plant, cutting 10 percent of the gross regional product in the greater Youngstown area. 

 

Trump, in his remarks on Wednesday, placed some of the blame on the United Auto Workers, the union representing the GM workers.  

 

“Your union leaders aren’t on our side,” Trump declared. “They could have kept General Motors” operating the Lordstown plant.  

Trump spoke at a facility in Lima that makes the M1 Abrams tank for the U.S. Army, about 300 kilometers from the idled auto factory.  

 

“You better love me. I kept this place open,” Trump told workers at the General Dynamics facility, which was nearly closed six years ago after Army officials told Congress they did not need the additional tanks.  

Ohio, which Trump won in the 2016 election by 8 percentage points, again will be a key battleground state in next year’s presidential election. 

 

Polls in the Buckeye State, where the president relies on a strong base of working-class voters, show his approval rating slipping. 

 

Trade and tariffs are “not even the core issue about retaining the manufacturing jobs in this region,” University of Akron associate professor Mahesh Srinivasan, who is director of the school’s Institute of Global Business, told VOA. 

 

Srinivasan said the focus by the Trump administration should not be so much on trade agreements as on “the inevitable march of automation and technology that has displaced workers from traditional jobs. The need of the hour is doubling down with even more emphasis on worker training and education to prepare the workforce for tomorrow’s jobs.”  

 

Tariffs on imported automobiles — as are being contemplated by the White House — “would be counterproductive, like we have seen with steel tariffs,” said Srinivasan, who was part of former President Barack Obama’s Advanced Manufacturing Partnership task force. “It could attract retaliatory tariffs that will negatively impact numerous automobile manufacturers in Ohio and other Midwestern states, which today are supplying to automobile manufacturers globally.”  

  

Some trade analysts agree that Trump’s metals tariffs on Canada and Mexico have hurt American manufacturing, including making U.S. auto plants less competitive.  

 

Patsy Widakuswara and Elizabeth Cherneff contributed to this report. 

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BMW Warns Profits Will Fall Due to Costs, Trade Uncertainty

German automaker BMW said Wednesday that profits in 2019 would be “well below” last year’s and that it planned to cut 12 billion euros ($13.6 billion) in costs by the end of 2022 to offset spending on new technology.

The company said profits would be eroded by higher raw materials prices, the costs of compliance with tougher emissions requirements and unfavorable shifts in currency exchange rates.

The Munich-based automaker also faces increased uncertainty due to international trade conflicts that could lead to higher tariffs.

The company forecast a profit margin of 6 to 8 percent for its automotive business, short of the long-term strategic target of 8 to 10 percent, which it said still “remains the ambition” for the company given “a stable business environment.”

BMW said it had no plans for layoffs even as it outlined cost saving measures that include dropping half of its engine variants as it seeks to reduce product complexity. The BMW, MINI and Rolls-Royce brands are to get a single sales division.

Chief Financial Officer Nicolas Peter said that given the headwinds to earnings, “we began to introduce countermeasures at an early stage and have taken a number of far-reaching decisions.”

The company said the measures were needed “to offset the ongoing high level of upfront expenditure required to embrace the mobility of the future.”

BMW shares were down 4.9 percent to 72.02 euros in Frankfurt.

Automakers around the world have faced heavy up-front costs for new technologies expected to change how people get from one place to another in the next decade. Those include electric cars and renting cars through smartphone apps. Yet the returns from such investments remain uncertain and auto companies face competition from tech firms such as Uber and Waymo.

BMW made 7.2 billion euros ($8.2 billion) in net profit last year, down 17 percent from 2017, when it booked a gain of $1 billion from U.S. tax changes. The company faced headwinds from increased tariffs on vehicles exported to China from the United States. It also suffered from turmoil on the German auto market when companies faced bottlenecks getting cars certified for new emissions rules.

BMW faces uncertainty from U.S.-China trade tensions that could result in new tariffs if talks do not result in an agreement. U.S. President Donald Trump has also threatened to impose auto import tariffs that would hit EU automakers, but has held off for now. BMW could also suffer disruption if Britain leaves the European Union without a negotiated departure agreement to address trade issues.

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GM to Invest $2.7B in Sao Paulo, Brazil Factories Over 5 Years

General Motors said on Tuesday it would invest $2.7 billion in two Brazilian factories over the next five years, sparing them from a shakeup of the automaker’s operations, a decision hailed by the governor of Brazil’s largest state.

Sao Paolo state Governor Joao Doria told a joint news conference with GM executives that the plants in Sao Caetano do Sul and Sao Jose dos Campos had been slated for closure last December, and said he convinced GM to reverse the decision, saving jobs.

Last November, GM said it would slash thousands of jobs around the world and would close two unspecified plants outside of North America by the end of 2019.

The company declined to say whether its restructuring plans had referred to the two Brazilian factories, and declined to comment on whether the two plants had been slated for closure as Doria claimed.

Sitting next to Doria at the news conference, GM’s CEO for South America, Carlos Zarlenga, also did not directly address Doria’s recounting of the negotiations with GM.

Doria, a former businessman and reality TV show host, took office in January and became a vocal advocate for the state’s auto industry. Earlier this year, he said he would find a buyer for a Ford Motor Co. plant that is slated to close, after the U.S. automaker said it had tried and failed to find one.

At Tuesday’s news conference, Doria said GM told him in a call days before his inauguration that it planned to close the plants.

“I thought it was going to be good news,” Doria said. “But to my surprise I was told that the next day GM CEO Mary Barra would announce the closing of two factories in Sao Paulo. I fell off my chair.”

He said he dispatched his future state finance minister to fix the situation and landed a meeting in Miami with GM executives. He said 65,000 workers employed directly and indirectly by GM would have lost their jobs without his intervention.

Earlier this month, Doria announced an incentive plan granting automakers a 25 percent reduction in value added taxes if they created at least 400 jobs and invested at least 1 billion reais. At the news conference, GM announced it was creating 400 new jobs.

Zarlenga said the future of its Sao Paulo factories had presented GM “a really serious problem,” but did not confirm that the automaker had considered closing them down.

GM, the sales leader in Brazil, South America’s largest market, had warned local employees it was dealing with heavy losses and “sacrifices” would be necessary.

As announced, the plan pales in comparison to GM’s most recent investment plan in Brazil in 2014, which totaled $4 billion. However, the announcement does not include potential future investments in the automaker’s plants elsewhere in the country.

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Saudi Arabia Invests $23 Billion to Improve Living in Riyadh

Saudi Arabia said on Tuesday it would spend 86 billion riyals ($23 billion) to boost the quality of life in the capital Riyadh, increasing green space and recreational areas and installing 1,000 works of art across the city.

The four projects unveiled are part of efforts to open up Saudis’ cloistered lifestyles, encourage physical activity and make life more fun in the conservative kingdom, alongside reforms to diversify the economy away from oil.

They are the latest in a series of planned development investments that King Salman has launched at the side of his son, Crown Prince Mohammed bin Salman, after a global outcry over the killing of Saudi journalist Jamal Khashoggi last October tarnished the crown prince’s image.

Park, cycling track planned

State media showed the pair touring a diorama of the plans, which include a park four times the size of Central Park and 135 kilometers (84 miles) of cycling track. The king also ordered that one of the capital’s main roads be renamed after his son.

The murder of Washington Post columnist Khashoggi in the Saudi consulate in Istanbul sparked international criticism of the crown prince, who had won Western plaudits for easing social strictures. The CIA and some Western countries suspect him of ordering the killing, which Saudi authorities vehemently deny.

The kingdom, and the crown prince, have also been criticized for a crackdown on dissent, including putting 10 prominent women’s rights activists on trial last week.

King stands by son

While some critics abroad have called for the crown prince’s removal, the king has stood by his favorite son and heir apparent as Riyadh tries to move on from the murder and refocus attention on reform plans that require huge foreign investment.

Work on the four new projects will start in the second half of the year and come on line gradually between 2023 and 2030. They will create 70,000 jobs and offer investment opportunities worth 50 billion riyals to local and foreign investors, state news agency SPA said.

One initiative aims to increase six-fold the percentage of green areas in Riyadh, notorious for its multi-lane highways and concrete block buildings, by planting 7.5 million trees. Seven museums, an open art fair, pedestrian bridges and community gardens are also called for.

Life in capital more relaxed

Such features were unimaginable in Riyadh just a few years ago when religious police patrolled the streets enforcing strict social codes like gender segregation and bans on public music.

But life in the capital has become more relaxed in recent years after the crown prince clipped the wings of the religious police, ended a ban on cinemas and began organizing public concerts. He has won the support of many young Saudis.

Saudi citizens have no vote and falling oil income could affect their living standards in coming years. As a result, improving quality of life is seen as important for ensuring political stability.

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Exclusive: US Vows to Pursue Ship Owners Who Violate Iran Oil Sanctions

A senior U.S. official says Washington is monitoring ships involved in clandestine transfers of Iranian oil and will hold anyone involved in such transfers responsible for violating U.S. sanctions against Iran.

“We are closely tracking ship-to-ship transfers of [Iranian] oil to evade our oil sanctions,” said Deputy Assistant Secretary of State for Counter Threat Finance and Sanctions David Peyman in an exclusive interview with VOA Persian recently at the State Department. “And we’re working closely with foreign governments to ensure they are monitoring ship-to-ship transfers off their coasts.”

One of the few companies monitoring global oil shipments, TankerTrackers.com, reported last week that it identified in February two cases of clandestine ship-to-ship transfers of Iranian oil with the transponders of the vessels involved being disabled. In an email sent Friday to VOA Persian, TankerTrackers.com co-founder Samir Madani said in both cases, a ship transferred Iranian oil to another ship before a third ship picked up the oil from the second ship and delivered it to a port.

“One transfer took around three months to complete, while the other happened during the span of a month or so,” Madani said.

TankerTrackers.com has said Iranian crude oil tankers have been trying to hide their activities since August by switching off the Automatic Identification System (AIS) transponders that reveal their position and other information.

President Donald Trump re-imposed U.S. sanctions on Iranian oil exports, Tehran’s top revenue source, in November as part of his withdrawal from what he viewed as a flawed 2015 nuclear deal between Iran and world powers. The sanctions unilaterally barred Iran from exporting oil to all but eight governments who were given six months to reduce their Iranian oil purchases to zero.

Peyman said U.S. authorities will act against ship owners, managers, insurance providers and mortgagees linked to vessels involved in the clandestine transfers of Iranian oil at sea. “If you are engaged in evasive action, which is really the worst kind of violation when it comes to U.S. sanctions, we will hold you accountable,” Peyman said.

Flying their flags

In another U.S. step aimed at cracking down on Iranian efforts to evade oil sanctions, Peyman said Washington has secured pledges from several nations to avoid putting their flags on Iranian oil tankers.

Last month, a State Department news site said Panama stripped 59 Iranian-linked ships of their right to fly the Panamanian flag, in a move aimed at supporting U.S. sanctions. It said Panama’s purge of the tankers from its ship registry, one of the world’s largest, will make it harder for Iran to deliver oil to ports around the world.

“Panama really led the way for other countries to follow suit by pulling their own flags and for other countries to commit to the U.S. that they will not reflag those ships that the Panamanians withdrew their flag from,” Peyman said.

The State Department declined to provide examples to VOA Persian of countries that committed not to reflag Iranian vessels that have been de-flagged by Panama.

Iranian Oil Minister Bijan Zanganeh has said Tehran will not comply with what it considers to be “illegal” U.S. sanctions. Speaking on a Jan. 10 visit to Baghdad, Zanganeh also said Iran will not discuss the volume or destination of its oil exports while it remained under U.S. sanctions.

Bypassing sanctions

Peyman said Washington also will take action against any company that uses a new European financial mechanism to engage Iran in transactions that violate U.S. sanctions. Britain, France and Germany launched the Institute in Support of Trade Exchanges, or INSTEX, in January to enable European companies to conduct business with Iran using barter techniques that bypass the U.S. financial system.

INSTEX’s EU sponsors initially intend for it to facilitate humanitarian trade with Iran, but its scope could be expanded to other types of business. U.S. sanctions on Iran contain exemptions for the provision of humanitarian aid, food and medicine to the Iranian people.

Iran has called on EU leaders to ensure that it continues to receive international trade benefits promised under the 2015 nuclear deal that EU nations have sought to uphold following the U.S. pullout. But Iranian officials in recent weeks have expressed disappointment with what they view as the EU’s slow rollout of INSTEX.

Tehran has good reason to be disappointed, according to Peyman.

“I’ve been to several countries in Europe, I’ve spoken with very large industry groups and businesses in the private sector … and every indication that I’m receiving is that there is absolutely no interest to utilize a European financial mechanism to do business with Iran,” he said.

Peyman, who was born in Iran, said no “responsible” European businesses want to trade with an Iranian government they perceive as responsible for killing Americans and sponsoring terrorism on European soil. He said European companies also make an independent business decision, based on a cost-benefit analysis, to do business with the United States and use the U.S. financial system rather than to maintain a relationship with Iran.

Tehran sees itself as a victim, rather than a perpetrator, of terrorism.

“To the extent that there is any appetite by [companies] to use [INSTEX], we’ll be tracking it very, very closely,” Peyman said. “Those companies’ ties to the U.S. financial system will be looked at, their use of U.S. banks will be looked at, and their use of non-U.S. banks that have ties to U.S. banks will be looked at. And we will look at any potential violations, direct or indirect, knowing or unknowing, of U.S. sanctions laws and will vigorously enforce [them].”

This article originated in VOA’s Persian Service.

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Brazilian Court Suspends Operations at 2 More Vale Dams

A Brazilian court has ordered Vale SA, the world’s largest iron ore miner, to suspend operations at two more dams, demanding that it prove the structures are stable.

The court decision dated Friday is the latest in a series of orders forcing Vale to halt operations at various dams that contain the muddy detritus of mining operations after one such barrier collapsed in January, killing some 300 people.

Vale has faced growing pressure to prove that its remaining dams are safe. The fatal disaster in the town of Brumadinho was the second of its kind in four years.

The company’s iron ore production is expected to be 82.8 million tons, or 21 percent, lower than was planned for the year due to the restrictions on its Brazil operations, including the planned decommissioning of all its upstream dams, according to data compiled by Reuters.

Karel Luketic, analyst for steel, iron ore and pulp at XP Investimentos, said on Monday he does not expect the impact on Vale’s earnings to be as large because iron ore prices are rising, which could compensate for lower volumes.

The miner said in a statement that the latest suspension, impacting its Minervino and Cordao Nova Vista dams, will not have a significant impact on its operations. It said that mining waste was already being shipped to “other structures,” which it did not identify.

Vale said on Friday it had received a court order to suspend activities at Ouro Preto dam.

Vale shares closed slightly lower in Sao Paulo, losing 0.18 percent to 50.46 reais, in contrast to a rally in rival miners Rio Tinto and BHP.

The company’s shares fell on the same day the Sao Paulo exchange’s main index reached 100,000 for the first time.

The restrictions to Vale operations in Brazil seem to have impacted shipments, something that was not clear in the first weeks after the disaster in Brumadinho.

According to trade ministry data released on Monday, Brazil’s iron ore shipments for the first two weeks of March were 1.29 million tonnes per day on average.

Shipments in February averaged 1.44 million tons per day while in March 2018 they averaged 1.42 million tons.

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US Wages Wide-Ranging Campaign to Block Huawei

VOA’s Xu Ning contributed to this report.

Over the past several weeks, the U.S. government has launched a seemingly unprecedented campaign to block the Chinese telecom giant Huawei Technologies from competing in the global rollout of next-generation 5G mobile networking technology, claiming that the company is effectively an arm of the Chinese intelligence services.

In an effort that has included top-level officials from the departments of State, Justice, Defense, Homeland Security, and Commerce, as well as the president himself, the Trump administration has taken steps to curtail Huawei’s ability to operate within the U.S. It has also mounted an extraordinary effort to convince U.S. allies to bar the firm from operating on their soil.

Huawei has long been viewed with suspicion and distrust in many corners of the global economy. The company has a documented history of industrial espionage, and its competitiveness on the global stage has been boosted by massive subsidies from the government in Beijing. Still, the scope of the U.S. government’s current offensive against the company is remarkable.

“Huawei has been accused of many things for a very long time. This is nothing new. What is unique is the extent of the pressure campaign,” said Michael Murphree, assistant professor of International Business at the University of South Carolina’s Darla Moore School of Business. “In the grand scheme of international technology competition, this is certainly a very strong effort against a specific firm.”

The push to keep Huawei from playing a major role in the rollout of 5G comes at a time when the U.S. and China are in talks to end a costly trade war that the U.S. launched last year with the imposition of tariffs against hundreds of billions of dollars’ worth of Chinese exports. In another unprecedented move, President Donald Trump has even tied at least one of the government’s actions against Huawei — a federal indictment in which the company’s chief financial officer has been named — as a potential bargaining chip in trade discussions.

A corporate spokesman for Huawei declined to comment on the Trump Administration’s aggressive tactics.

The case against Huawei

U.S. officials cite a number of reasons to treat Huawei with extreme suspicion, some of them well-documented, others less so.

Top of the list is a National Intelligence law passed in China in 2017 that gives government intelligence services broad and open-ended powers to demand the cooperation of businesses operating in China in intelligence gathering efforts. U.S. policymakers argue that this presents an unambiguous threat to national security.

“In America we can’t even get Apple to crack open an iPhone for the FBI,” Florida Senator Marco Rubio said in a March 13 appearance on Fox Business Network. “In China, Huawei has to give the Chinese anything they ask for.” He added, “They should not be in business in America.”

And while Huawei has strongly denied that it operates as an arm of the Chinese intelligence services, at least two recent international espionage cases have come uncomfortably close to the firm.

 In January, the Polish government arrested a Huawei executive on charges of spying for China. The company itself has not been charged in the case, and Huawei announced that the employee, a sales manager, had been fired.

Early last year, the French newspaper Le Monde Afrique reported that over the course of several years, the computer systems in the Chinese-financed headquarters of the African Union in Addis Ababa were secretly transmitting data toservers in Shanghai every night, and that listening devices had been discovered implanted in the building. It was later revealed that the primary supplier of information and communications technology to the project had been Huawei.

No proof has ever been put forward that Huawei was involved in the data theft, and African Union officials have declined to go on the record confirming that the information transfers ever occurred.

One of the most frequent concerns expressed by U.S. officials about Huawei is the least substantiated: the idea that the company could install secret “backdoor” access to communications equipment that would give the Chinese government ready access to sensitive communications, or even enable Beijing to shut down communications in another country at will.

It’s a claim that Ren Zhengfei, Huawei’s 74-year-old founder and president, has personally ridiculed. The government would never make that request, and Huawei would never comply, he told the BBC recently. “Our sales revenues are now hundreds of billions of dollars. We are not going to risk the disgust of our country and our customers all over the world because of something like that. We will lose all our business. I’m not going to take that risk.”

The public battle over Huawei’s image

The sheer number of fronts on which the U.S. federal government is currently engaging with Huawei, sometimes very aggressively, is notable.

The most high-profile of these is a federal indictment of the company naming its Chief Financial Officer, Meng Wanzhou, in an alleged scheme to deceive U.S. officials in order to bypass U.S. sanctions on Iran. Meng was arrested in Canada at the request of U.S. prosecutors, and the Justice Department is seeking her extradition in order to have her face trial in New York. At the same time, a second federal indictment accusing the company of stealing trade secrets, was unsealed in the state of Washington.

It is the Meng case that President Trump has suggested he might use as leverage in ongoing trade talks. Speaking to reporters at the White House last month, he said, “We’re going to be discussing all of that during the course of the next couple of weeks. We’ll be talking to the U.S. attorneys. We’ll be talking to the attorney general. We’ll be making that decision. Right now, it’s not something we’ve discussed.”

There have also been active efforts to dissuade other countries from doing business with Huawei.

Last month, Secretary of State Mike Pompeo warned U.S. allies that if they use Huawei telecommunications equipment in their critical infrastructure, they will lose access to some intelligence collected by the United States “If a country adopts this and puts it in some of their critical information systems, we won’t be able to share information with them, we won’t be able to work alongside them,” Pompeo said in an interview with Fox Business Network.

On March 8, the U.S. Ambassador to Germany sent a letter to the German minister for economic affairs, reiterating the U.S. government’s concern about the potential for backdoors in Huawei systems and the threat of tampering during complex software updates. He said that U.S. intelligence sharing would be significantly scaled back if Germany uses Huawei products in its new telecommunications systems.

In February, the U.S. government sent a large delegation to MWC Barcelona, the telecommunications industry’s biggest trade show, where they publicly excoriated the company as “duplicitous and deceitful.” The U.S. delegation included officials from the departments of State, Commerce, and Defense, as well as Federal Communications Commission Chairman Ajit Pai. Also there were officials from the U.S. Agency for International Development, who made it clear that foreign aid dollars from the U.S. will not be available to help fund purchases from Chinese telecom firms.

In addition, a law signed by President Trump last year bars the federal government from buying equipment from Huawei and smaller Chinese telecom company ZTE. Trump has additionally floated the possibility of an executive order that would block Huawei from any participation at all in U.S 5G networks.

Huawei is fighting back, filing a lawsuit this month that claims it was unfairly banned from U.S. government computer networks. Deng Cheng, a senior research fellow at The Heritage Foundation in Washington, said the lawsuit may be aimed at determining what information the U.S. government is using to make its case.

 “There is information that the intelligence community may have that isn’t necessarily going to be made public,” he said. “What is admissible in court is not always the same as the information that is actually available. So I’m not really sure how this court case will even be adjudicated.”

Huawei’s lawsuit is likely also partly aimed at improving the firm’s reputation at a time when it is under siege by American officials.

The risk of pushback from China

At a time when the United States relations with even its closest traditional allies is under strain, Washington’s seemingly unilateral demand that a major global supplier be effectively shut out of an enormous marketplace is an audacious request.

For one thing, it is complicated by the fact that for countries and companies anxious to take advantage of 5G wireless technology, there may not be a ready substitute for the Chinese firm.

This seems to be reflected in recent reports that U.S. allies, in Europe, India, the United Arab Emirates and elsewhere, are showing real resistance to U.S, demands. A report in the New York Times late Sunday said that in Europe, the general sense is that any risk posed by Huawei is manageable through monitoring and selective use of the company’s products. The story noted that German Chancellor Angela Merkel’s response to the U.S. was a terse message that Germans would be “defining our standards for ourselves.”

And of course, there is always the possibility — even the likelihood — of Chinese retaliation against countries that accede to the United States’ requests. And in China, where the media is largely controlled by the Communist Party, and access to international news services is sharply limited, that retaliation would likely have widespread public support.

“The very strong perception is that Huawei is a great Chinese company that has done extraordinary things to move to the global frontier, in some respects to the head of the pack, and it is being unfairly treated and held back by the United States for specious reasons,” said Lester Ross, the partner-in-charge of the Beijing office of U.S. law firm Wilmer Hale.

 

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