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U.S. Moves to Cut Off Chip Supplies to Huawei — 3rd Update

By Bob Davis and Katy Stech Ferek 

WASHINGTON -- The Trump administration announced export restrictions on Friday designed to cut off Chinese telecom-equipment maker Huawei Technologies Co. from overseas suppliers, threatening to ignite a new round of U.S.-China economic tensions.

The restrictions stop foreign semiconductor manufacturers whose operations use U.S. software and technology from shipping products to Huawei without first getting a license from U.S. officials, essentially giving the U.S. Commerce Department a veto over the kinds of technology that Huawei can use.

Under the new rules, the department can block the sale of semiconductors manufactured by Taiwan Semiconductor Manufacturing Co., for Huawei's HiSilicon unit, which designs chips for the company, as well as chips and other software produced by manufacturing facilities in China and South Korea, which use American chip-making technology. The Commerce Department already had the ability to license software shipments from U.S.-based facilities.

Huawei had no immediate comment. China's foreign ministry, in a statement, urged the U.S. to immediately halt "its unreasonable suppression against Huawei."

"The U.S.'s practices not only harm the legitimate rights and interests of Chinese enterprises, but also do not accord with the interests of U.S. enterprises, and cause damage to the global industrial chain, supply chain and value chain," it said.

Asked about possible Chinese retaliation, a senior State Department official said it was too early to say what the impact of the new measure would be.

The announcement came the day after Taiwan Semiconductor Manufacturing Co. -- known as TSMC -- said it planned to build an advanced semiconductor plant in Arizona. Commerce Department officials and TSMC said there was no connection between the two announcements.

TSMC "has always complied with the laws and regulations of the countries where we operate," a company spokeswoman said, adding that the factory project was based on customer needs.

The new rules allow the Commerce Department to block TSMC as a supplier to Huawei, targeting Huawei's ability to procure many advanced chips and potentially setting back smartphone launches and the company's production of advanced telecom equipment, analysts said.

The move is also expected to be a blow to Huawei, the world's largest maker of telecommunications equipment and No. 2 vendor of smartphones. Huawei has also emerged as one of China's dominant makers of semiconductors through its HiSilicon chip-design subsidiary. Its chips are widely used across its business lines, including in its networking base stations, smartphones and other products.

U.S. makers of semiconductors worry that the rules will slash their sales not only to Huawei but other Chinese firms, which might worry that the Commerce Department will next target them. Those firms may now look for non-American suppliers of technology, U.S. companies fear.

The new regulation is considered an "interim final rule" -- bureaucratic lingo for a rule that goes into effect without needing public comment. The Commerce Department, however, said the rule's implementation would be delayed for 120 days, giving companies a chance to get the government to amend the regulation.

Congress also could weigh in. On May 6, six senators wrote to President Trump urging the administration to "proceed cautiously, solicit feedback from industry, and ensure that well-intentioned proposals do not have unforeseen, damaging effects on the U.S. economy."

The administration has worked on the new restriction for months, and took extra precautions to keep the deliberations secret, realizing the U.S. semiconductor firms were lobbying against the changes. The lengthy review had led to speculation that the administration was watering down the proposal, especially after TSMC earlier on Friday announced its $12 billion chip-making facility in Arizona.

Over the past two months, Mr. Trump and others in his administration have deepened their criticism of China, particularly for its handling of the coronavirus pandemic, alleging that Beijing had covered up the outbreak and gobbled up protective gear that left the U.S. ill-equipped to handle the outbreak here. The administration's critics charge that Mr. Trump was focusing on China as a way to deflect from criticism that he has acted ineffectively to contain the virus.

The move against Huawei is bound to give the president an additional political talking point that he has been tougher on China than his presumptive Democratic opponent, former vice president Joe Biden. But the action carries political risks also if the anti-China offensive tanks an already fragile stock market. Over the past two years, Mr. Trump has sometimes backed off his attacks on China when the market has swooned.

The restriction further tightens the U.S. export-control system's existing rules related to Huawei. Washington alleges that Huawei gear could be used by Beijing to spy globally, which Huawei has repeatedly denied.

On Friday, a senior administration official said there were "legal, human rights, and strategic rationales" for the actions against Huawei. Those included Huawei's alleged theft of intellectual property and aid in developing surveillance technology and new weapon systems, the official said.

"This is not how a responsible global corporate citizen behaves. We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national-security and foreign-policy interests," said Commerce Secretary Wilbur Ross in his announcement of the new rule.

Beijing had long anticipated the U.S. move. In April, Chinese antitrust regulators called in several U.S. semiconductor companies to warn them that if the rule went into effect, China would retaliate, said people familiar with the actions, though they didn't specify the potential retaliation.

Hu Xijin, editor of the nationalist Global Times newspaper, in a tweet on Friday warned that Qualcomm, Cisco Systems Inc., Apple Inc. and Boeing Inc. all could be targets of retaliation. Mr. Hu is typically seen as channeling the views of more hawkish members of China's Communist Party leadership.

The senior administration official played down the impact of the rule on Huawei. 'This is a licensing requirement," the official said. "It doesn't necessarily mean things are denied."

A year ago, Commerce Department officials put Huawei on an export blacklist of companies considered to be national-security threats. That move was designed to cut Huawei off from some U.S. semiconductor makers.

Over the last year, however, Huawei's suppliers have largely managed to get around the blacklisting through a technicality. American companies -- such as Qualcomm Inc. and Intel Corp. -- could still supply Huawei with some chips that are manufactured overseas. Huawei has also greatly ramped up the use of HiSilicon-designed chips, primarily built by TSMC, thereby reducing its reliance on the U.S. supply chain.

Huawei is now capable of building both 5G base-stations and advanced smartphones free of American technology, The Wall Street Journal reported in December.

At a news conference discussing the company's annual results in March, Eric Xu, Huawei's deputy chairman, warned that Beijing would retaliate against American companies operating in China if the Trump administration moved ahead with the new rule.

The rule change is expected to hurt American makers of semiconductor manufacturing equipment, led by Applied Materials Inc., Lam Research Corp. and KLA Corp. The equipment industry has lobbied against the move, arguing in recent letters to the Commerce Department and Mr. Trump they should at least be allowed to comment before the change took effect.

U.S. semiconductor equipment makers dominate the market, with a share of about 45% of global sales, which are projected at around $58 billion this year by SEMI, an industry group. American companies are expected to export about $21 billion of manufacturing equipment to foreign semiconductor factories this year.

Restrictions placed on manufacturing equipment used to make chips for Huawei means non-U. S. factories may favor equipment made outside the U.S. because it comes with fewer strings attached, to the detriment of the U.S. industry.

--Dan Strumpf in Hong Kong, Asa Fitch in San Francisco and Yoko Kubota in Beijing contributed to this article.

Write to Bob Davis at and Katy Stech Ferek at


(END) Dow Jones Newswires

May 15, 2020 12:21 ET (16:21 GMT)

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