The Chinese government has invested billions in the telecom equipment manufacturer Huawei. In addition to being the world’s second largest smartphone manufacturer, the Chinese company supplies low-cost telecom equipment to much of the world, including many rural wireless providers in the U.S. A recent trade ban on Huawei’s equipment endangers the health of many small telecom businesses that operate in rural areas.

Trade restrictions are allowed for national security

The U.S. Secretary of Defense is allowed to restrict trade with companies that have ties to the Chinese government from supplying the federal government under the National Defense Authorization Act. 

The U.S. banned government agencies from purchasing Huawei networking equipment in 2012 to address concerns about espionage but turned up the heat on the company last week when President Trump signed an executive order barring the use of any equipment from Huawei on American communications networks. With 5G network installations underway, concerns are that Huawei will use deployed equipment to spy on other countries and companies.

In compliance with the executive order, the U.S. Commerce Department placed Huawei and 70 of its affiliates on the Entity List that blacklists trade with American companies due to national security. The move forces companies to find new manufacturers when supplies are already tight from worldwide upgrades to network equipment.

Is this a complete ban on Huawei?

The addition of Huawei to the Entity List restricts Huawei from supplying low-cost telecom equipment. Dozens of rural cell service providers in nine states built their small businesses by providing service to areas where it’s not economical for large providers like Verizon or Sprint. Major telecom providers avoid small, rural populations because of the high infrastructure cost and low revenue potential.

Without access to the budget equipment, rural providers testified that they are in danger of bankruptcy. Under the ban, the small companies must remove and replace every piece of equipment they’ve installed and replace it with more expensive European or American technology.

Bankruptcy isn’t the only option

Congress proposed relief in legislation with a sum of $700 million, but that won’t cover all of the small providers’ costs. The companies estimate that complying with the ban would run into the billions. Bankruptcy lawyers may provide some protection to the small businesses if they face an outsized share of the replacement costs.

If the small telecom companies can’t restructure their debt and close up shop, rural customers across the U.S. could lose access to cell service. To incent the FCC approval of their merger, Sprint and T-Mobile committed to providing 5G service to 90% of the nationwide rural communities six years after their merger is final.

The potential for sabotage of companies and countries is enormous

With such widespread upgrades underway worldwide, Huawei’s ties to the Chinese government pose a significant risk to American interests. But it’s the company’s low-cost telecom equipment that worries small rural wireless providers in the United States. The trade ban that maintains American sovereignty hits much closer to home for some small businesses.