Stocks Slide: US Finalizing Federal Contract Ban For Companies Using Huawei, Other Chinese Tech Giants

Another day, another escalation in US-China trade, tech, diplomatic, financial – you name it – relations, and this time stocks noticed.

Moments ago, Reuters reported that in its latest crackdown on Chinese reverse-engineering tech giants, the Trump administration plans to finalize regulations this week that will bar the U.S. government from buying goods or services from any company that uses products from five Chinese companies including Huawei, Hikvision and Dahua, a U.S. official said.

The rule, which was prompted by a 2019 law, and which has been triggered by Trump’s pre-election fears that he is losing to Biden, will have far-ranging implications for companies that sell goods and services to the U.S. government since they will now need to certify they do not use products from Dahua or Hikvision, even though both are among the top sellers of surveillance equipment and cameras worldwide. The same goes for two-way radios from Hytera Communications Corp and telecommunications equipment or mobile devices like smartphones from Huawei Technologies or ZTE Corp .

Any company that uses equipment or services in their day-to-day operations from these five companies will no longer be able to sell to the U.S. government without getting a U.S. government waiver.

“The danger our nation faces from foreign adversaries like China looking to infiltrate our systems is great,” said Russ Vought, acting director of the White House Office of Management and Budget in a statement to Reuters.

“The Trump Administration is keeping our government strong against nefarious networks like Huawei by fully implementing the ban on Federal procurement.”

While there was previously uncertainty in the contracting community surrounding the implementation and enforcement of the rule, given its potential impact on contractors, the White House is making clear it will not be delayed and waivers could be difficult to get.

The rule from the Federal Acquisition Regulatory Council will take effect on Aug. 13. Putting the size of this ban in context, every year the U.S. government annually awards more than $500 billion in contracts, according to the Government Accountability Office.

While it is unclear if this will have an impact on current contracts, it could complicate future contracts. Amazon.com for example, received 1,500 cameras to take temperatures of workers during the coronavirus pandemic from Zhejiang Dahua Technology in April.

The official said the administration will require agencies to conduct a national security analysis before they grant any waivers, something Congress did not expressly require in the statute.

The official added that the rule is aimed at more than just barring government agencies from using products from Huawei and other named Chinese firms, but is a bid to limit their influence, saying it essentially gives companies a choice: do business with the U.S. government or with the Chinese firms.

It is the latest effort by Washington to isolate the Chinese firms.

The news which came moments after the open, sent stocks sliding even if the Nasdaq – which is now going through its second tech bubble phase – remains in the green.