Huawei License Status Tops 'Troubling' Succession of Trade War Deadlines Ahead, BofA Analysts Say

The next few months include a "rapid-fire succession of trade and tech war deadlines" that poses a high level of uncertainty for the fight between the U.S. and China, Bank of America economists Ethan Harris and Alexander Lin said in a Sept. 30 research report. Of those deadlines, what happens with Huawei's temporary general license is likely the most important unknown, they said. Huawei on Nov. 17 will be cut off from all U.S. exports, but "we expect an 'extend and pretend' scenario where Huawei remains on the 'entity list' but is allowed to keep buying US inputs."

The first of the deadlines is the 5 percent tariff increase on $250 billion worth of goods from China set to begin on Oct. 15. "This is a relatively small step and includes few politically sensitive consumer products," they said. "We see it as a low cost way to extend the war and hence likely to happen. Note that there are talks between the US and China scheduled for the prior week, so we wouldn’t rule out a further delay in these tariffs."

Next, on Nov. 13, a new decision on Section 232 auto tariffs is due. "Such tariffs would be a major escalation of the trade war and a big blow to Europe in particular," the economists said. "However, it also means putting a tax hike on a highly visible consumer product. We expect the Trump Administration to delay action, reloading the 'auto war parking meter' through the election."

The last of the deadlines is the 15 percent Section 301 tariffs set to begin on Dec. 15 on most of the goods from China not already being tariffed. "At this stage, we assume the tariff goes through, but this round hits a very high proportion of consumer products and products for which China is the only supplier, making it more painful to the US and hence less likely to happen," Harris and Lin said.

The Huawei deadline is the most important of those, they said. Among the possible scenarios are that Huawei is taken off the entity list and is allowed to buy U.S. products or that all sales to Huawei are stopped altogether, Harris and Lin said. The other more likely scenario is a policy of "extend and pretend” in which Huawei is kept "on the entity list but making one long extension or several short extensions of its access to US products," they said. "Note that in each of these scenarios we think the restrictions on purchases of Huawei products will continue."

The "extend and pretend" policy seems to make the most sense because it "does not permanently surrender a key bargaining chip" and avoids jolting the stock market, they said. "Up to now, tech stocks have held up well in the face of the Tech war, but putting the 'deep freeze' on Huawei could escalate concerns that this is the first step in the decoupling of the US and China tech sectors," the economists said.