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U.S. Delivers Another Blow to Huawei With New Tech Restrictions – The New York Times

U.S. Delivers Another Blow to Huawei With New Tech Restrictions - The New York Times

WASHINGTON — The Trump administration issued new rules Friday that will bar Huawei and its suppliers from using American technology and software, a significant escalation in its battle with the Chinese telecom giant and one that will likely inflame tensions with Beijing.

The rule changes will prevent companies from selling chips to Huawei that are made with American manufacturing equipment, or based on designs that are the product of American software and technology, the Commerce Department said. Companies can apply for a license to continue supplying products to Huawei, but the administration said the presumption will be to deny those requests.

While the restrictions could have sweeping implications, semiconductor industry executives and analysts said they were still waiting to analyze the detailed text of the rule, which was expected to be released Friday afternoon.

The move seemed aimed at inflicting further damage on Huawei, which continues to rely on American-made machinery and software designs to make the chips for its smartphones and tablets, as well as the companies that supply it. The Trump administration has singled out Huawei as a threat to national security, saying that its gear should not be trusted because it is beholden to the Chinese government, an accusation the company has denied.

The measure comes on top of several restrictions taken against Huawei in the last year. The administration added the Chinese telecom giant to an “entity list” last May, barring exports of American products to Huawei and 114 of its affiliates unless suppliers had first obtained a license.

After that rule was imposed, Huawei took steps to reduce its reliance on American chip manufacturers like Qualcomm, and ramp up its in-house production through a chip unit, HiSilicon.

But HiSilicon still relies on outside manufacturers, including Shanghai-based Semiconductor Manufacturing International Corporation, or S.M.I.C., and Taiwanese chip maker T.S.M.C. to mass-produce chips to its specifications. And many of those operations rely to some extent on technology that was developed and refined in the United States, where the semiconductor industry originated.

In a statement Friday, the Commerce Department said that Huawei had tried to “undermine” its previous restrictions by using American software and technology to make its own semiconductors, and purchasing products from foreign foundries that use American equipment.

“There has been a very highly technically loophole through which Huawei has been able, in effect, to use U.S. technology with foreign fab producers,” Wilbur Ross, the commerce secretary, said in an interview Friday morning on Fox Business Network. He said the changes announced Friday were tailored moves “to try to correct that loophole and make sure that the American fab foundries are competing on an equal footing with the foreign ones.”

While the scope of the measure remains unclear, it could weigh on major chip contract manufacturers that sell to Huawei, particularly S.M.I.C. and T.S.M.C., which rely heavily on American manufacturing tools. It may also clamp down on sales by makers of semiconductor equipment, like Applied Materials, KLA Corporation and Lam Research, as well as chip design software companies.

Kevin Wolf, a partner at Akin Gump and a former Commerce Department official, called the rule a “novel, complex expansion of U.S. export controls.” But he said the regulation would only apply narrowly to chips that are designed by Huawei and its affiliates, and thus would not affect other items made by U.S. or foreign companies outside the United States that are now sold to Huawei.

The move comes at a moment of heightened tensions between the United States and China. President Trump has blamed China for not doing enough to stop the spread of the coronavirus and has suggested the United States may punish the Chinese government. Mr. Trump has also begun threatening to scrap the trade deal the two countries signed in January.

“This came from China,” Mr. Trump said at a White House event to discuss a vaccine on Friday. “It should have been stopped in China before it got out to the world.”

The new measure against Huawei, one of China’s biggest technology companies and a crown-jewel of Chinese innovation, could prompt a backlash against American technology companies that depend on sales to China, such as Qualcomm and Apple.

On Friday evening, the English edition of the Chinese state-controlled newspaper Global Times cited an unnamed source who said that the Chinese government was ready to retaliate against the new U.S. moves.

“Based on what I know, if the U.S. further blocks key technology supply to Huawei, China will activate the ‘unreliable entity list,’ restrict or investigate U.S. companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes,” Hu Xijin, the editor in chief of the Global Times, wrote on Twitter.

In a call with reporters Friday, a State Department official said that the United States had broad concerns about Huawei, including that it had violated American sanctions on Iran and helped the Chinese government construct a surveillance network within China and abroad. Huawei is key to the Chinese government’s broad strategy of “civil military fusion” that supports the Chinese Communist Party’s global ambitions, the official said.

In a statement Friday, Senator Ben Sasse, a Nebraska Republican, called the rule change “long overdue.”

“The United States needs to strangle Huawei,” he said. “Modern wars are fought with semiconductors, and we were letting Huawei use our American designs. This is pretty simple: chip companies that depend on American technology can’t jump into bed with the Chinese Communist Party.”

Huawei had no immediate comment. The Commerce Department is collecting feedback from companies on the rule, which is not set to take effect for 120 days.

The move came shortly after an announcement Thursday night that T.S.M.C. had agreed to build a $12 billion manufacturing facility in Arizona, in a response to the Trump administration’s growing concerns about the security of the global electronics supply chain.

In a statement early Friday morning, Secretary of State Michael R. Pompeo said the deal would increase American economic independence from China and strengthen the U.S. relationship with Taiwan, a self-governing island claimed by Beijing.

Also on Friday morning, the Commerce Department extended for another 90 days a license that has allowed American companies to continue doing business with Huawei temporarily. It warned this would be the final extension.

Paul Mozur and Raymond Zhong contributed reporting.

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