The US crackdown on Huawei has made the Chinese telecommunications giant the flashpoint in a monumental economic and technological showdown between the two superpowers that is testing allies of both.
One day after the US moved to block Huawei from the US market and banned the export of US technology and materials to the company, China warned Washington Thursday against further harming trade ties.
"We urge the US to stop this practice and instead create better conditions for business co-operation," Foreign Ministry spokesman Lu Kang said.
At the same time, Canada suffered a fresh blow when Beijing formally arrested two Canadians who have been detained for months on national security grounds, a move widely seen as retaliation for Ottawa's arrest of a Huawei executive last year at Washington's behest.
In Britain, a heated debate continued over the government's reported decision to allow some Huawei technology in its coming 5G mobile network, a decision that led to the May 1 firing of defence secretary Gavin Williamson.
Meanwhile, European stocks have fallen, government bond yields slipped and the Japanese yen firmed after the US government hit Chinese telecoms giant Huawei with severe sanctions, further straining Sino-US trade ties.
An index of European shares fell as much as 0.5 per cent in early European trading, with the German stock index down 0.4 per cent. US stock futures were down 0.4 per cent, pointing to a weak Wall Street start.
The broad weakness in European markets was somewhat offset by small gains in Chinese and Hong Kong stock indexes.
How will Huawei respond?
Huawei Technologies says it will challenge a decision by the US Commerce Department to add the Chinese company to an export blacklist, warning the decision "will do significant economic harm to the American companies with which Huawei does business".
Huawei says the decision will "affect tens of thousands of American jobs, and disrupt the current collaboration and mutual trust that exist on the global supply chain".
The decision by the Commerce Department to add the company and 70 affiliates to its so-called Entity List bans them from buying parts and components from US companies without US government approval.
US officials told Reuters the order would also make it difficult, if not impossible, for Huawei, the largest telecommunications equipment producer in the world, to sell some products because of its reliance on US suppliers. The order will take effect in the coming days.
The dramatic move comes as the Trump administration has aggressively lobbied other countries not to use Huawei equipment in next-generation 5G networks and comes just days after Washington imposed new tariffs on Chinese goods amid an escalating trade war.
Donald Trump has signed an executive order barring US companies from using telecommunications equipment made by firms posing a national security risk. Source: AAP
Trade war worries
And the spat over Huawei added to the uncertainty over negotiations between Washington and Beijing to end a bruising trade war, after the two sides exchanged fire with tariff hikes in recent days.
"The US's bullying and maximum pressure tactics have caused the China-US economic and trade talks to suffer a serious setback," Chinese Commerce Ministry spokesman Gao Feng said.
"China does not fear any pressure, and has the confidence, resolution and ability to respond to any risk and challenge," he added.
The tough talk has hit global financial markets and stirred concerns in other capitals of dangerous fallout.
"I think launching now a technological war or a trade war vis-a-vis any other country is not appropriate," French President Emmanuel Macron warned Thursday.
"First, it is not the best way to defend your national security -- we don't need it. Second, it is not the best way to develop your own ecosystem and have a world of cooperation and decrease tensions," he said.
Huawei already 5G leader
The Huawei confrontation has been building for years, as the world's largest company has raced to a huge advance on rivals in developing next-generation 5G mobile technology
US intelligence believes Huawei is backed by the Chinese military and that its equipment could provide Beijing's intelligence a backdoor into the communications networks of rival countries.
For that reason, Washington has pushed its closest allies to reject Huawei technology, a significant challenge given the few alternatives for 5G.
On Wednesday, President Donald Trump declared a "national emergency" empowering him to blacklist companies seen as "an unacceptable risk to the national security of the United States" -- a move clearly aimed at Huawei.
The US government has placed telecom equipment giant Huawei on a blacklist. Source: AAP
At the same time, the US Commerce Department announced an effective ban on US companies selling or transferring US technology to Huawei.
"This will prevent American technology from being used by foreign-owned entities in ways that potentially undermine US national security or foreign policy interests," Commerce Secretary Wilbur Ross said.
Broader technology battle
But the Huawei fight is over more than just US national security. Washington sees Huawei's rise as emblematic of China's drive to wrest global technological and economic leadership from the United States.
That drive, in Washington's eyes, includes large subsidies and protections for strategic industries, backed also by an alleged concerted program to steal American technology.
The US Justice Department has prosecuted numerous cases in recent years of Chinese theft of trade and intellectual property secrets in the aerospace, food processing, agriculture, defense and other industries.
Beijing's intelligence apparatus is accused of a decade-long concerted effort to steal engine designs and other technology from US aviation giant Boeing and its suppliers.
In January, Huawei and company officials were indicted in the United States for offering bonuses to engineers to steal robotic technology secrets from telecoms carrier T-Mobile.
"China is a formidable competitor and its leaders are clear in their intentions to displace the US, which they see as in decline, and rebuild global rules and institutions to serve China's interests," James Lewis, a technology and intelligence expert at the CSIS think tank, told a Congressional hearing this week.
"China has developed a competing model for innovation and investment that is well-funded and centrally directed. US technological leadership is no longer undisputed," he said.
