The Trump Administration has since banned the company and its products from entering the United States due to the alleged security risks or the possibilities of Huawei used by China to infiltrate government systems, as well as, to interfere secure communication lines as a form of espionage and sabotage.
The Wall Street Journal reported that US Ambassador Richard Grenell sent a letter to German Economy Minister Peter Altmaier on Friday warning that in such a case the US could scale down intelligence and other information exchanges.
The U.S. has apparently warned Germany that if Chinese tech companies such as Huawei help build the country's new 5G telecom infrastructure, U.S. agencies might not share as much intelligence with the German government as they now do.
A German security official said the situation is more nuanced, noting that the USA didn't provide evidence to back up its Huawei warnings. Among other things, European security agencies have relied heavily on USA intelligence in the fight against terrorism, it said.
Chinese law obliges companies headquartered in the country to provide technical assistance to intelligence services, but Huawei has strenuously denied allegations its equipment could be used for espionage.
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Huawei has in recent months met with over 200 politicians to try and smooth over security fears, he added.
Washington has urged allies to bar Huawei and other Chinese companies from critical communication-infrastructure work because of suspicion that these companies might share data with the Chinese government. However, they stressed that the United States would no longer trust Germany's lines because 'the Americans will assume that all information given to Germany will end up in China'.
On Tuesday, German Chancellor Angela Merkel said Berlin would consult Washington over using technology made by Huawei, although "we will define our standards for ourselves".
The legal changes are still being finalised within Germany's ruling coalition, the ministry spokesman said.
Germany reportedly relies on U.S. intelligence to combat terrorism, so the threat of decreased collaboration in this area carries significant weight. Germany, however, said recently that Huawei should be allowed to bid for its 5G contracts. However, a CNBC report found that, under Chinese law, Huawei would be compelled by the Chinese government to assist with government surveillance if the government asks.