US cracks down on global chip exports to Huawei, China retaliation eyed

China's Global Times has said Beijing is ready to put US companies on an “unreliable entity list”

A new rule, unveiled by the Commerce Department, expands US authority to require licenses for sales to Huawei of semiconductors made abroad with US technology (REUTERS)

The Trump administration on Friday moved to block global chip supplies to blacklisted telecoms equipment giant Huawei Technologies, spurring fears of Chinese retaliation and hammering shares of US producers of chipmaking equipment.

A new rule, unveiled by the Commerce Department and first reported by Reuters, expands US authority to require licenses for sales to Huawei of semiconductors made abroad with US technology, vastly expanding its reach to halt exports to the world's No. 2 smartphone maker.

"This action puts America first, American companies first, and American national security first," a senior Commerce Department official told reporters in a telephone briefing on Friday.

Huawei, the world's top telecoms equipment maker, did not respond to a request for comment.

News of the move against the firm hit European stocks as traders sold into the day's gains, while shares of chip equipment makers like Lam Research and KLA Corp fell around 5% in US trading.

The reaction from China was swift, with a report on Friday by China's Global Times saying Beijing was ready to put US companies on an "unreliable entity list," as part of countermeasures in response to the new limits on Huawei.

The measures include launching investigations and imposing restrictions on US companies such as Apple Inc, Cisco Systems Inc and Qualcomm Inc, as well as suspending purchase of Boeing Co airplanes, the report said, citing a source.

The Commerce Department's rule, effective Friday but with a 120-day grace period, also hits Taiwan Semiconductor Manufacturing Co Ltd, the biggest contract chipmaker and key Huawei supplier, which announced plans to build a US-based plant on Thursday.

TSMC said on Friday it is "following the U.S. export rule change closely" and working with outside counsel to "conduct legal analysis and ensure a comprehensive examination and interpretation of these rules.”

The department said the rule is aimed at preventing Huawei from continuing to "undermine" its status as a blacklisted company, meaning suppliers of US-made sophisticated technology must seek a US government license before selling to it.

"There has been a very highly technical loophole through which Huawei has been in able, in effect, to use U.S. technology with foreign fab producers," Commerce Secretary Wilbur Ross told Fox Business News on Friday, calling the rule change a "highly tailored thing to try to correct that loophole."

The company was added to the so-called "entity list" last year due to national security concerns, amid accusations from Washington that it violated US sanctions on Iran and can spy on customers. Huawei has denied the allegations.

Frustration among China hawks in the administration that Huawei's entity listing was not doing enough to curb its access to supplies prompted an effort, first reported by Reuters in November, to crack down on the company that culminated in Friday's rule.

Despite the crackdown, the Commerce Department separately extended a temporary license that was set to expire on Friday to allow US companies, many of which operate wireless networks in rural America, to continue doing business with Huawei through August 13. It warned it expected this would be the final extension.

Huawei, which needs semiconductors for its smartphones and telecoms equipment, has found itself at the heart of a battle for global technological dominance between the United States and China, whose relationship has soured in recent months over the origins of the deadly coronavirus.

While the rule change is aimed at squeezing Huawei and will hit the chip foundries it relies on, US manufacturers of chipmaking equipment could face long-term pain, if chipmakers seek out new equipment sources beyond the reach of US rules.

But for now, most chipmakers rely on equipment produced by US companies like KLA, Lam Research and Applied Materials, according to a report last year from China's Everbright Securities.

(Reporting by David Shepardson, Karen Freifeld and Alexandra Alper; additional reporting by Ben Blanchard and David Kirton Editing by Lincoln Feast and Steve Orlofsky)