President Trump on Monday signed the latest annual edition of the U.S. defense bill, with the legislation securing $716 billion for security policy funding and loosely banning the federal use of technologies from Chinese hardware manufacturers Huawei and ZTE. Section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 prohibits the use and procurement of "covered telecommunications equipment or services" in certain scenarios, with the bill later clearly stating any equipment created by Huawei and ZTE falls under that technology category.
While the ban isn't absolute, it prevents heads of federal agencies from entering into contracts or renewing old agreements to utilize Huawei and ZTE's solutions in a way that would position them as "essential" component of any government system. Likewise, the executive branch of the federal government is prohibited from awarding critical contracts to any private company that relies on ZTE- and Huawei-made tech in a significant manner, as per the same law. The bill doesn't go into more details on the matter, leaving the intricacies of its enforcement up for interpretation across the federal government. Industry watchers previously suggested that even a soft ban like this one is likely to discourage federal agencies from ordering Huawei and ZTE's technologies for any purpose moving forward.
While the development was largely anticipated, ZTE still managed to avoid the worst-case scenario as a previous draft of the defense budget act included a provision that would have reinstated its denial order issued by the Commerce Department over trade embargo violations in April. The seven-year ban on the purchase of American technologies threatened to bankrupt China's telecom juggernaut in a matter of months but ended up being lifted earlier this summer, whereas the more aggressive anti-ZTE provision was removed from the defense act last month. Huawei itself has a long history of issues with the U.S. government and was repeatedly accused of posing a national security risk due to its close ties to Beijing, which is a notion that the company described as baseless on numerous occasions.