Supply Lines: It might get messy

Supply Lines

The U.S. tech showdown with China is about to get messier for many American companies.

According to a report Wednesday from Bloomberg's Jenny Leonard and Shelly Banjo, aerospace, technology, auto makers and a dozen other industries are scrambling ahead of an Aug. 13 deadline to comply with a far-reaching provision tucked into a defense spending bill from two years ago.

Section 889, part B, of the National Defense Authorization Act would require companies to certify that their entire global supply chain — not just the part of the business that sells to the U.S. government — is devoid of gear from Huawei, ZTE, Hikvision and other targeted Chinese tech firms.

The measure could apply to virtually all companies that count Uncle Sam as a customer, including subsidiaries and service providers deep in a firm's supply chain. Excluding subcontractors, more than 100,000 companies provided $598 billion in goods and services directly to the U.S. government last year, according to a Bloomberg Government tally.

Huawei and ZTE have almost no market share in the U.S. and have been banned from American government systems. But they are dominant in many other countries.

Trade groups that represent companies like Lockheed Martin, Amazon, Apple, 3M and Ford have been pushing the Trump administration and lawmakers to fix the wide-ranging provision. They also want to delay its implementation to ensure firms can comb through their supply chains to comply, a task made more difficult by the global pandemic.

For example, a U.S. company with a London office that uses the Royal Mail to ship products might be in jeopardy, because the U.K.'s national mail carrier could employ Huawei networking equipment deep in its systems, according to an analysis by one trade group.

With mostly bipartisan support in Congress, the Trump administration has launched a global effort to curb Huawei's ascent, accusing the Chinese company of being a security threat. As Bloomberg's Susan Decker reported this week, Huawei owns the most patents on next-generation 5G technology.

The latest Trump salvo banned the sale of any silicon made with U.S. know-how, striking at the heart of the company's semiconductor apparatus and aspirations in artificial intelligence and mobile services. What Huawei now fears is that Washington, according to another Bloomberg report this week, has finally figured out how to quash its ambitions. 

Brendan Murray in London

Charted Territory

The global pandemic means food security, self-sufficiency and urban farming have become household words and governments are starting to reexamine how their countries are fed. Raising output by putting more land under the plow is becoming increasingly contentious because of deforestation and habitat loss. Brazil has more than doubled its soybean output in the past decade, partly by expanding into the Cerrado, one of the last big tropical savannas.

Today's Must Reads

  • No-deal pain | Trade talks between the EU and U.K. are floundering, increasing the prospect that Britain departs the bloc without a deal and that businesses face an extreme shock when the split takes effect.
  • Drug bust | The Food and Drug Administration had to walk back testimony by an official last week after he downplayed the scale of China's dominance of the drug supply chain in the U.S.
  • Pass the veg | U.S. per-capita meat consumption is set to drop for the first time since 2014 this year thanks to the novel coronavirus, which is pushing up meat prices.
  • Tough talk | EU efforts to soothe transatlantic trade tensions have stalled, according to the bloc's trade chief, who said the upcoming U.S. election means any breakthrough may be delayed until after November.
  • Who's the boss? | SoftBank Group's Arm Ltd. and its Chinese venture clashed publicly over whether the venture's CEO had been fired, a dispute that threatens to disrupt a Western company central to the global semiconductor industry.
  • Pigs flew | Volga-Dnepr Group has flown more than 3,000 breeding swine to China from France this year, a move aimed at restoring local livestock levels to mitigate shortages in the world's largest market for pork.

On the Bloomberg Terminal

  • Long term | The pandemic has prompted trade restrictions that may be a harbinger of longer-lasting protectionist trends rather than temporary measures, writes Bloomberg Economics
  • Training wheels | Union Pacific, whose rail franchise covers 23 states, will need to use every lever it has to help mitigate unprecedented volume weakness in the coming months, writes Bloomberg Intelligence.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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