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Trump’s Huawei Reprieve Causes More Problems—Data Sheet

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Clay Chandler here, filling in for Adam. I'm on leave in Montana this week and following China tech developments from afar.

President Trump stunned observers on both sides of the Pacific last Saturday with an announcement that he is willing to scale back restrictions barring Huawei Technologies from buying high-tech equipment from U.S. firms.

The unexpected reprieve for the Chinese telecommunications giant, which Trump officials had previously vilified as an appendage of the Communist Party, followed a high-profile meeting between Trump and Chinese leader Xi Jinping at the Group of 20 summit in Osaka, Japan. The concession helped bring Chinese trade negotiators back to the bargaining table—and set off a furious political fracas in Washington.

American technology companies, who lobbied aggressively against Trump's May 15 decision to place Huawei on a national security blacklist, have hailed Trump's about-face as pragmatic. But the move infuriated congressional China hawks, including many senior Republicans, who have lambasted the president for conflating trade and national security.

Days after the two leaders' meeting, it remains unclear what, exactly, Xi was promised. In Osaka, Trump said “U.S. companies can sell their equipment to Huawei" but also sought to allay security concerns. "We're talking about equipment where there’s no great national security problem with it," he said. In a television appearance Sunday, White House economic adviser Larry Kudlow stressed that the U.S. had not removed Huawei from the national security blacklist. "This is not a general amnesty," he declared.

In China, such fine distinctions seem lost in translation. Behind the Great Firewall, Trump's peace offering has been widely dismissed as empty rhetoric. In an interview with the Financial Times, Huawei founder Ren Zhengfei—who only weeks ago acknowledged that being placed on the U.S. blacklist would whack $30 billion off Huawei's bottom line—scoffed at Trump's overture saying it would not have "much impact" on his business. In recent days, there have been a flurry of reports in both the Chinese and Western press suggesting Trump's zig-zagging on Huawei has mainly succeeded in galvanizing China to seek to eliminate its dependence on U.S. technology.

Beijing-based venture capitalist Ben Harburg, in an interview with CNBC on the sidelines of the World Economic Forum's confab in Dalian, argued that by creating a "moment of complete desperation" in which Huawei and other Chinese firms had no alternative to U.S. semiconductors, the United States only frightened China into boosting its own semiconductor industry. Boston Consulting Company chairman Hans-Paul Burkner warns that, resumption of trade talks notwithstanding, the U.S. and China remain locked in competition for technological dominance: “There is still a possibility that we will really have two technology worlds: a Chinese one and a U.S. one."

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Data Sheet will take a break tomorrow and Friday for the U.S. Independence Day holiday. I'll be enjoying West Yellowstone's annual display of fireworks (which were probably made in China).

Clay Chandler
@claychandler
clay.chandler@fortune.com

NEWSWORTHY

Over the event horizon. After an attempted coup and multiple assassinations of top government officials, Ethiopia’s Prime Minister Abiy Ahmed cut most of the country off from the Internet. On Tuesday, the country was allowed back online. But in Myanmar, a continuing Internet black out ordered by the government may be hiding ethnic cleansing or other war crimes, human rights advocates warned.

Not ready for prime time. The House Financial Services Committee sent a letter to Facebook asking the company to halt development of its digital currency, Libra. Lawmakers said they were concerned that Libra “raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over two billion users, but also for investors, consumers, and the broader global economy.”

Arc of the moral universe. More than 200 companies including every major tech firm, from Apple to Google to Microsoft, signed a “friend of the court” brief to the Supreme Court seeking to have anti-discrimination laws applied to their LGBTQ employees. The high court is hearing multiple cases that raise the issue in its next term.

Feeling upgradable. The next Galaxy Note smartphone from Samsung will likely be announced at the company’s Unpacked event, set for August 7 in New York City. The stylus-enabled phone is also expected to offer an option for 5G compatibility.

Virtual bloodhounds. A couple of major privacy controversies to ponder over your holiday weekend. A fancy email app getting a lot of buzz called Superhuman adds a tracking pixel to sent emails to allow reporting of whether recipients read the message (this newsletter–and almost all newsletters–does the same). And China has been secretly installing surveillance apps on the phones of people who visit the Xinjiang province from next-door Kyrgyzstan.

FOOD FOR THOUGHT

It’s been almost three years since Walmart shelled out $3.3 billion for e-commerce startup Jet.com in a bid to catch up to Amazon. Recode’s Jason Del Rey reviews how much has gone well and what challenges remain. While its e-commerce sales grew faster than Amazon’s last year, Walmart’s online unit is projected to lose $1 billion this year. Now Jet founder and online chief Marc Lore may have to sell off some of his prized acquisitions.

Lore has overseen the acquisitions of menswear brand Bonobos for $310 million, vintage-style clothing brand ModCloth for less than $50 million, and, most recently, the women’s plus-sized fashion brand Eloquii for $100 million. Part of the thinking was that those deals would give Walmart and its online stores exclusive merchandise that shoppers can’t find on Amazon, which could help the Middle America retail giant appeal to a new generation of consumers who typically wouldn’t shop at Walmart.

But all three businesses are still unprofitable, sources say. And in recent months, Walmart has discussed the potential sale of both Bonobos and ModCloth to separate outside buyers, according to multiple sources familiar with the discussions. ModCloth will likely be sold this year, these people said, and almost certainly for less than what Walmart paid for it. On the other hand, Walmart plans to hang onto Bonobos, after contemplating a sale but deciding against it.

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BEFORE YOU GO

There has been a storm of content produced to mark the 50th anniversary of the Apollo 11 moon landing. The New York Times has helpfully compiled a list of the best movies, podcasts, and documentaries. Enjoy and we will see you back here for Data Sheet on Monday.

This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.