U.S., China exchange barbs over Huawei as trade tensions flare

WASHINGTON/BEIJING (Reuters) – The United States and China had a heated exchange on Thursday, with U.S. Secretary of State Mike Pompeo accusing Chinese telecom giant Huawei Technologies of lying about its ties to the government and Beijing saying Washington must end its “wrong actions” if it wanted trade talks to continue.

U.S. tech stocks were the hardest hit in an overall sharp global market drop on Thursday in signs the conflict between the world’s two biggest economies was being seen as a battle not just over trade but also about who controls global technology.

Citing national security concerns, Washington last week effectively banned U.S. firms from doing business with Huawei, the world’s largest telecoms network gear maker, taking the stakes to a different level days after negotiators appeared to be making headway on trade.

Tech companies around the world fell in line. Japanese conglomerate Panasonic Corp said it had stopped shipments of some Huawei components, a day after British chip designer ARM did the same, potentially crippling the Chinese company’s ability to make new chips for smartphones.

Asked if he believed more firms would stop working with Huawei, Pompeo told CNBC in an interview on Thursday: “We do. We’ve been working at the State Department to make sure that everyone understands the risks.”

Pompeo said the chief executive of China’s Huawei Technologies was lying about his company’s lack of ties to the Beijing government, which he said represented a security risk.

“The company is deeply tied not only to China but to the Chinese Communist Party. And that connectivity, the existence of those connections puts American information that crosses those networks at risk,” he said.

   “If you put your information in the hands of the Chinese Communist Party, it’s de facto a real risk to you. They may not use it today, they may not use it tomorrow.”

Huawei has repeatedly denied it is controlled by the Chinese government, military or intelligence services.

U.S. HELP FOR TECH FIRMS, FARMERS

U.S. lawmakers moved on Wednesday to provide about $700 million in grants to help U.S. telecoms providers with the cost of removing Huawei equipment from their networks, and to block the use of equipment or services from Huawei and Chinese telecoms firm ZTE in next-generation 5G networks.

On Thursday, China’s Commerce Ministry hit back.

“If the United States wants to continue trade talks, they should show sincerity and correct their wrong actions. Negotiations can only continue on the basis of equality and mutual respect,” spokesman Gao Feng told a weekly briefing.

“We will closely monitor relevant developments and prepare necessary responses,” he said, without elaborating.

No trade talks have been scheduled since the last round ended on May 10, when President Donald Trump hiked tariffs on $200 billion worth of Chinese goods and took steps to impose more, prompting China to respond with levies of its own.

Trump has threatened to slap tariffs of up to 25% on an additional list of Chinese imports worth about $300 billion, but his Treasury Secretary Steven Mnuchin on Wednesday said he was hopeful the two sides could resume negotiations.

Sources have said the talks stalled after China tried to delete commitments from a draft agreement that its laws would be changed to enact new policies on issues from intellectual property protection to forced technology transfers.

With no resolution in sight, Agriculture Secretary Sonny Perdue on Thursday announced a $16 billion aid program to help U.S. farmers hurt by the conflict, with some funds to be used to open markets outside China to U.S. products. Farmers have been among those hardest hit by the trade war.

Retailers, including Best Buy Co Inc and Walmart Inc, are also warning that the tariffs will raise prices for consumers. The newest round will cost the typical American household $831 annually, according to research on Thursday from the Federal Reserve Bank of New York.

Pompeo also confirmed a New York Times report on Wednesday that China was using high-tech surveillance to set up an intrusive policing effort that could be used to subdue its minorities, including ethnic Muslim Uighurs.

The United States is considering Huawei-like sanctions on Chinese video surveillance firm Hikvision Digital Technology Co Ltd over the issue, a person briefed on the matter said.

Also feeding into tensions, the U.S. military said it sent two Navy ships through the Taiwan Strait on Wednesday, prompting Chinese Foreign Ministry spokesman Lu Kang to lodge “stern representations.”

Taiwan is one of a growing number of flashpoints in the U.S.-China relationship, which also include China’s increasingly muscular military posture in the South China Sea, where the United States also conducts freedom-of-navigation patrols.

Trump, who has embraced protectionism as part of an “America First” agenda aimed at rebalancing global trade, is due to discuss the farmers’ aid program in remarks scheduled for 3:15 p.m. EDT (1915 GMT) at the White House.

He is expected to meet Chinese President Xi Jinping at a G20 summit in Japan June 28-29, around the time when the next levies could be ready, according to Mnuchin’s calculations.