President Donald Trump’s banning of U.S. companies buying Huawei equipment or selling components to Huawei now overshadows the tariff fight between the two countries. Former White House Chief Strategist Steve Bannon suggested that killing Huawei is more important than a trade deal with China. Only days after imposing the ban, Trump eased the pressure somewhat, as the U.S. Commerce Department announced that in the next 90 days it will allow Huawei to purchase U.S.-made goods in order to maintain the existing networks of its clients and provide software updates to existing Huawei handsets.This would lessen the unintended impact on the U.S. customers of Huawei and prevent potential network blackouts.

The Chinese government reacted furiously to the ban. China’s Foreign Ministry voiced support for companies to use “legal weapons” to safeguard their legitimate rights just hours after Google restricted Huawei’s access to Android services and Google apps. Huawei will only be able to access some of Google’s software and services that have open source licensing. This is less of a problem in China, where Google apps such as YouTube and Gmail are blocked anyway, but could hamper the sales of Huawei smartphones outside China, where customers expect to be able to use Google apps and upgrade the Android mobile operating system. Huawei will continue to provide security updates and after-sales services to all existing Huawei and Honor smartphone and tablet products, covering those that have been sold and that are still in stock globally. Honor is a leading smartphone brand under Huawei.

Last year, Huawei bought USD11 billion worth of products and services from U.S. companies. Some U.S. semiconductor companies, like Qorvo, get about 10% of their revenues from Huawei. In an interview, Huawei Founder Ren Zhengfei thanked the U.S. companies that have helped Huawei grow in the international tech arena. “Our friendship with them was formed years or decades ago,” Ren said, adding that if U.S. companies can get government approvals, Huawei would still want to buy large quantities of components from them and maintain normal trade cooperation. Huawei is aiming to be the biggest smartphone brand in the world by 2020. It sold about 30 million units in the Chinese market in the fourth quarter of 2018, or about half its global total, according to IDC.

Top U.S. corporations including Qualcomm and Intel have frozen supply of critical software and components to Huawei. Some telecom carriers such as Vodafone, EE and Softbank are postponing the presale of Huawei smartphones. But German chipmaker and semiconductor manufacturer Infineon and Japan’s Panasonic declared that they did not stop their supplies to Huawei. The conflict could slow down the deployment of 5G in countries which do not use Huawei equipment, and to be forced to connect to non-Huawei 5G infrastructure could prove to be very expensive. “The U.S. side is misleading the public and stirring up an ideological battle, which is illegitimate,” Spokesperson Lu Kamg of China’s Foreign Ministry said, noting that over the past 40 years, differences in ideology have not stopped China and the U.S. from working together on trade, industry and technology.

President Trump might also extend the ban to other Chinese companies in a move Chinese analysts dubbed a Cold War in the tech industry. Companies that could be targeted include Zhejiang Dahua Technology, Hangzhou Hikvision Digital Technology, Megvii, Meiya Pico and iFlytek. Chinese drone manufacturer DJI said safety is at the core of everything the company does, and the security of its technology has been independently verified by the United States government and leading U.S. businesses. The company’s statement came after the U.S. Department of Homeland Security said Chinese-made drones may be sending sensitive flight data back to their manufacturers in China, which could be accessed by the government. Nearly 80% of the drones in the U.S. and Canada are made by Shenzhen-based DJI, the world’s largest commercial drone maker, according to a study from Skylogic Research.

Hangzhou Hikvision Digital Technology Co, the world’s largest manufacturer of video surveillance products and solutions, said it follows all applicable laws and regulations in the markets it operates in, adding that it has already retained a human rights expert and former U.S. Ambassador Pierre-Richard Prosper to advise the company regarding human rights compliance.” Xu Lei, Vice President of Hikvision, said the company has prepared backup plans to cope with the U.S. security concerns. Hikvision’s U.S. business only accounts for 6% of its total revenue.

China is considering to retaliate by declaring the use of U.S. equipment a danger to China’s national security. China’s tech industry will no doubt also enhance its self-reliance in core technologies, reducing reliance on U.S. technology and undermining the future market in China. According to the draft Cybersecurity Review Measures published last week by China’s Cyberspace Administration, operators of the country’s critical information infrastructure, including major telecommunications network operators and financial service providers, would be required to evaluate the national security risk when purchasing foreign products and services. National security concerns have long been used as the justification for Washington’s increased scrutiny over Huawei and other Chinese tech companies. The Chinese government is seeking public feedback to the draft regulation till June 24. Analysts warn that the world is heading down a path of two distinct technology-based ecosystems where China pushes out U.S. companies and the U.S. pushes out Chinese companies.

Beijing rejected Washington’s claim that China broke a trade deal the two sides had agreed upon, saying efforts by the United States to confuse the public and shift blame are in vain. President Donald Trump said: “We actually had a deal, and they broke it.” China’s Foreign Ministry’s Lu Kang countered: “I do not know what this deal means. Maybe the U.S. has a deal it hopes for, but it is by no means agreed to by China.” The fundamental reason for the failure to reach an agreement after 11 rounds of bilateral trade talks is that the U.S. is trying to exert maximum pressure on China to realize unreasonable demands, he added. Commenting on the possible continuation of the trade talks, the United States should show sincerity and correct their wrong practices if the country wants to continue Sino-U.S. trade talks, China’s Commerce Ministry said. “Only on the basis of equal treatment and mutual respect will talks be likely to move on,” Spokesperson Gao Feng said.

Meanwhile, Chinese President Xi Jinping visited JL Mag Rare-Earth Co in Jiangxi province, as some analysts expect China to ban rare earth exports to the U.S. China accounts for 90% of global rare earths production and the minerals are among the few items excluded from the planned U.S. tariffs on almost all remaining Chinese goods exported to the U.S. China accounted for seven out of every 10 tons of rare earth elements mined worldwide last year and was the biggest exporter to the U.S. The minerals are vital to the production of components in electric vehicles, the audio and camera systems of Apple iPhones and the U.S. military’s guided missiles. The prices of heavy rare earths have risen 30% this year. A key time to watch will be June, when China is expected to set its mining quota for rare earths for the second half of the year. The first half quota was 60,000 tons, the same as last year.