The Pentagon has overruled the U.S. Commerce Department’s efforts to make it more difficult for U.S. companies to sell to Huawei Technologies from their overseas facilities. According to sources, the Defense Department and the U.S. Treasury Department also objected to the Commerce Department’s move. The Pentagon’s main concern is that if U.S. companies lose a significant source of revenue, they will be unable to fund research and development sufficiently enough to “maintain a technological edge.”

The Wall Street Journal reports that, “the chip industry has pressed that argument in talks with government officials.” “We have to be conscious of sustaining those [technology] companies’ supply chains and those innovators,” said Defense Secretary Mark Esper. “That’s the balance we have to strike.”

The Trump administration “is united on trying to block the expansion of Huawei internationally … [and] there is widespread frustration within the administration that a move in May to place the company on the Commerce Department’s blacklist didn’t have much of an effect.” That’s because “U.S. companies figured out [that] … if chips and other electronics are produced overseas and contain less than 25 percent U.S.-made content subject to export restrictions, those goods can be shipped license-free to Huawei.”

In response, the Commerce Department “sent to the Office of Management and Budget a rule that would reduce that percentage to 10 percent when it comes to Huawei.” When OMB “then circulated the rule to agencies for comment,” the Defense Department objected. The rule “required the State, Commerce, Defense and Energy departments to sign on, with the Treasury Department also getting a say.”

The Treasury Department “wanted to make sure that Secretary Steven Mnuchin had a chance to weigh in,” said one source. WSJ notes that, “the splits within the Trump administration on how to deal with Huawei show the difficulty of confronting China on technology without harming U.S. companies.”

U.S. Senators Ben Sasse (R-Nebraska), Tom Cotton (R-Arkansas) and Marco Rubio (R-Florida) wrote Esper “asking him to explain his rationale … [since] Huawei is an arm of the Chinese Communist Party and should be treated as such.” A Trump administration official reported that, with “government and corporate representatives from Japan and other democratic countries,” it is “exploring how it could help companies produce hardware that could compete with Huawei on 5G within 18 months.”

This week, the U.K. is also considering whether to “ban use of Huawei equipment, which the U.S. considers a security risk.” U.S. officials “have been touring the world trying, with limited success, to have foreign governments block local network operators from using equipment from Huawei in their 5G networks,” with the argument that “Huawei is beholden to the Chinese government and that its equipment could be used for spying, which Huawei denies.”

UPDATE:
UK Will Allow Huawei to Help Build its 5G Network Despite U.S. Pressure, CNN, 1/28/20