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Huawei ban clouds U.S.-China trade talks, tech sector

WASHINGTON/BEIJING (Reuters) – A U.S. bid to block ChinaÔÇÖs Huawei Technologies from buying vital American technology threw into question sales from some of the largest tech companies and drew a sharp rebuke on Thursday from Beijing, which warned it could hurt trade talks.

Shares of HuaweiÔÇÖs U.S. suppliers fell on fears the Chinese firm would be forced to stop buying American chips, software and other components after the Trump administration banned it from buying U.S. technology without special approval.

Huawei, the worldÔÇÖs biggest telecoms equipment maker, said that losing access to U.S. suppliers ÔÇ£will do significant economic harm to the American companiesÔÇØ and affect ÔÇ£tens of thousands of American jobs.ÔÇØ

ÔÇ£Huawei will seek remedies immediately and find a resolution to this matter,ÔÇØ the company said in a statement.

U.S. Commerce Secretary Wilbur Ross told Bloomberg the order blacklisting Huawei will go into effect on Friday.

The U.S. crackdown, announced on Wednesday, was the latest shot fired in a U.S.-China trade war that is rattling financial markets and threatening to derail a slowing global economy.

Chinese officials said WashingtonÔÇÖs aggressive posture could affect trade talks, which appeared to have hit an impasse in the past week as the United States hiked tariffs on Chinese goods and Beijing retaliated with higher duties on U.S. products.

Commerce Ministry spokesman Gao Feng stressed that the United States should avoid further damaging Sino-U.S. trade relations. ÔÇ£China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms,ÔÇØ Gao told reporters.

ChinaÔÇÖs Foreign Ministry also announced the formal arrest of two Canadian citizens who were detained shortly after Canada arrested Huawei Chief Financial Officer Meng Wanzhou in December.

Meng faces extradition to the United States on charges that she conspired to defraud global banks about HuaweiÔÇÖs relationship with a company operating in Iran. She and the company deny the charges.

While Canada says China has made no specific link between the detentions of the two men and MengÔÇÖs arrest, experts and former diplomats say they have no doubt it is using their cases to pressure Canada.

ECONOMIC FALLOUT

The Commerce Department said on Wednesday it was adding Huawei and affiliates to its ÔÇ£Entity List,ÔÇØ which bars them from buying components and technology from U.S. firms without government approval.

Lawmakers in the U.S. Congress have long feared that HuaweiÔÇÖs equipment could be used by the Chinese government to spy on Americans. Democrats and Republicans lined up in support of the Trump administrationÔÇÖs move.

Republican Senator Marco Rubio said firms should reconsider entering into long-term contracts with Huawei, noting in a tweet that ÔÇ£very soon Huawei will lose access to important components like chips, antennae & phone operating systems.ÔÇØ

Rubio added that for Huawei there are ÔÇ£real questions now about how they can survive this.ÔÇØ

Leading analysts downgraded their assessments for several microchip companies in the wake of the move against Huawei, which was the worldÔÇÖs third largest purchaser of semiconductors last year.

Huawei was the worldÔÇÖs third largest purchaser of semiconductors last year, accounting for 4.4% of global market share and behind only Samsung Electronics and Apple, according to Gartner, a research firm.

Susquehanna Financial Group analyst Christopher Rolland said he believed Huawei had built up a one- to two-year supply of U.S. components, noting that ÔÇ£this is what Huawei was afraid of!ÔÇØ Rolland cut price targets on several microchip companies, including Xilinx Inc.

Shares of Xilinx were down 5.7 percent in the early afternoon on Thursday while those of rival chipmaker Qualcomm Inc fell 3.6 percent. They were the biggest drags on the Philadelphia SE Semiconductor Index.

Optical components maker NeoPhotonics Corp was the biggest loser, with its shares falling 16.3%.

Analog Devices and Finisar Corp was down about 2.5% while Skyworks Solutions shed 4.8%, Qorvo was down 5.9%, laser sensor maker Lumentum Holdings fell 9%, and memory chipmaker Micron Technology lost 2.7%.

There are also growing signs the U.S.-China trade war could filter into the broader economy.

Walmart Inc said prices for shoppers will rise due to higher tariffs on Chinese goods even as the worldÔÇÖs largest retailer reported on Thursday its best comparable sales growth for the first quarter in nine years.

Walmart Chief Financial Officer Brett Biggs told Reuters the company will seek to ease the pain, in part by trying to buy from different countries.

TARIFFS

As negotiations toward resolving the trade war stalled last week, the United States ramped up the pressure by raising tariffs on a list of $200 billion worth of Chinese imports to 25% from 10%.

China, which views the U.S. decision last year to impose tariffs as the genesis of the trade war, retaliated this week with higher duties on a revised list of $60 billion worth of U.S. products.

President Donald Trump, who has embraced protectionism and accused China of engaging in unfair trade practices, has threatened to put 25% tariffs on another $300 billion worth of Chinese goods.

With few options left for levying tariffs on U.S. goods, China could opt for other ways to pressure the United States, including blocking corporate mergers and other deals.

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ÔÇ£ThereÔÇÖs other things they can do, and M&A would certainly be one thing,ÔÇØ┬ásaid Stacy┬áRasgon, an analyst with Bernstein.┬á┬á

While the United States wants significant changes in ChinaÔÇÖs approach to intellectual property rights and state subsidies as part of any trade deal, Beijing is insisting that all tariffs be eliminated.

The two sides are also at odds over how much more in U.S. goods China would have to agree to buy as well as how balanced the text of the draft trade agreement should be, Vice Premier Liu He, ChinaÔÇÖs lead trade negotiator, said last week.

Reporting by Yawen Chen and Se Young Lee and Diane Bartz; Additional reporting by David Shepardson in Washington, Stephen Nellis and Noel Randewich; in San Francisco and Arjun Panchadar in Bengaluru; Writing by Chris Sanders and Paul Simao; Editing by Sonya Hepinstall

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