Huawei or the highway. Photo: Thomas Peter-Pool/Getty Images

There’s a strong argument that markets (and pundits) have been overreacting to Donald Trump’s “trade war” with China. For example, on Monday, Beijing imposed tariffs on $60 billion of American exports — the Dow Jones Industrial Average promptly fell by more than 600 points.

As former Treasury secretary Larry Summers observed, investors’ ostensible reaction to China’s announcement appeared wildly disproportionate. After all, while the Chinese tariffs will apply to $60 billion worth of U.S. goods, the actual cost of the duties should be little more than $10 billion. Much of this sum “will show up as higher prices for Chinese importers,” while other costs “will be avoided by diverting exports of goods such as liquid natural gas to other markets, so the impact on U.S. corporate profits will be far less than $10 billion.” Nevertheless, China’s announcement was the proximate cause of a market dip that shaved $700 billion of value from U.S. stocks. And this was far from the first time that the imposition of tariffs affecting an infinitesimal fraction of global commerce caused investors to set their hair on fire.

And yet, if markets have been neurotically sensitive to modest escalations in the U.S.-China trade war, it’s quite possible that they’ve underreacted to President Trump’s new executive order effectively barring U.S. companies from selling semiconductors to — or buying technological equipment from — China’s largest technology company.

Specifically, the Trump administration added Huawei to the so-called Entity List, a set of companies that American firms cannot sell technology to without first obtaining a license from the U.S. government. And the White House simultaneously authorized the Commerce Department to “prohibit transactions posing an unacceptable risk” to national security — which would, among other things, bar U.S. broadband providers from importing equipment produced by Huawei.

If this is not a bluff or negotiating tactic — but rather the administration’s fixed, long-term policy — then its first-order effects will be considerable.

Huawei is the world’s second-largest smartphone maker, its No. 1 telecommunications-equipment provider, and a leading developer of 5G technology. And it is profoundly reliant on U.S.-made parts.

Last year, the company purchased $11 billion worth of computer chips and other components from American tech firms. What’s more, Trump’s ban also prohibits foreign companies from selling products that contain U.S.-made parts to Huawei. As CNN Business explains, this means that “Huawei won’t be able to buy, for example, chipsets from a Taiwanese supplier if those chipsets contain any U.S. parts or components.”

Without access to U.S.-made semiconductors, Huawei could struggle to fulfill its existing 5G contracts; while China is scaling up its domestic chip-making capacity, it currently accounts for only 3 percent of global chip production.

And some American chipmakers can’t afford to lose access to the Chinese market much more than Chinese tech companies can afford to lose access to American wares. San Diego–based Qualcomm, for example, made two-thirds of its sales in China last year, with Huawei serving as one of its biggest buyers.

Meanwhile, many rural broadband providers in the U.S. have built their business models around importing Huawei’s exceptionally inexpensive equipment. If they are forced to rely on pricier suppliers, the expansion of broadband into America’s hinterland could slow to a crawl.

Markets did take notice of these implications. American chipmakers saw their stocks sink Thursday, with Qualcomm’s shares falling 4 percent. Huawei doesn’t have publicly traded shares, but its 2027 dollar bonds are taking a hit. And the MSCI of Asia-Pacific shares slipped 0.2 percent following Trump’s executive order.

But it’s unclear if investors have grappled sufficiently with the broader trends that Trump’s Huawei ban might augur. While the stocks of companies directly affected by the executive order took a hit, U.S. markets as a whole were in the green for much of Friday. But if the White House’s new policy toward Huawei is earnestly motivated by national-security concerns, the consequences for global commerce writ large could be significant.

The infrastructure undergirding our globalized economy was built up back when history was still “over” — which is to say, when the collapse of the Soviet Union left a triumphant, neoliberal United States presiding over a unipolar world order. In this context, governments gave relatively little thought to how the private sector’s pursuit of maximally efficient supply chains might create strategic vulnerabilities — like, say, how the adoption of a U.S.-dollar-based financial clearing system could give the U.S. the power to tell Europe which petrostates it is and is not allowed to do business with, or how reliance on ultracheap Chinese tech equipment might leave a nation’s wireless networks exposed to Beijing’s surveillance. Multinational firms came to take it for granted that the prerogatives of commerce would take precedence over those of great-power competition.

But as Henry Farrell, a professor of political science and international affairs at George Washington University, explained on Twitter Thursday, Trump’s Huawei order is the latest signal that the world’s great powers may not be willing to put economic efficiency above grand strategy much longer:

[Trump’s decision to put Huawei on the Entity List] is the “beginning of decoupling” in the telecommunications sector. It’s the clearest sign yet that the basic assumptions of globalization are collapsing … The globalization of the 1990s massively transformed the world economy. National economic systems that had previously been separate from each other became densely interpenetrated, and deeply dependent on financial, informational and trade networks that spanned borders. These networks are structurally embedded. Supply chains have been globalized, in the pursuit of economic efficiencies. It’s hard to imagine how the world economy could work without them. But the pursuit of efficiency created strategic vulnerabilities. Some networks had hub structures meaning that states that could control the hub could control the network. Others relied on crucial components that were single sourced or sourced within an individual country. The last decade has seen states move increasingly to exploit these vulnerabilities against others or to shore their own vulnerabilities up against outside attackers. That’s the story of the use of SWIFT against Iran, and increasingly it’s the story of fights over tech/networks. … The Huawei move displays both US fears about vulnerabilities, and US efforts to exploit them. The US is worried that 5G networks could compromise US communications to surveillance. US is not only moving to push Huawei out of existing markets — but to damage Huawei’s core business by potentially preventing it from using core US components (such as Qualcomm chips or Android OS (it remains to be seen exactly which technologies will be listed). Chinese hawks are talking about retaliating through e.g. blocking sales of rare earths again. This will also reinforce Chinese efforts to build “autonomous and controllable” technology and supply chains outside US control to decrease their vulnerability to future attack. The old model of globalization is in serious trouble. The networks that tie the world economy together are being exploited for strategic gain. The US move is both a response to fears about its own vulnerabilities, and an effort to exploit China’s vulnerabilities in return. The result will likely be escalation — but we don’t know for sure. We still don’t have anything that approaches a strategic analysis of this new field of politics and how it works. Historical experience provides no good recent analogies.

It’s entirely possible that Trump’s moves against Huawei are merely attempts to secure leverage over China in broader trade talks; or else, that domestic interests will persuade the White House to put their profitability above the national-security state’s anxieties. But if the world’s two great powers no longer trust each other enough to maintain integrated, interdependent telecommunications sectors, Trump’s Huawei ban could mark the beginning of the end of globalization as we’ve known it.