US plans to restrict global chip supply to Huawei

WASHINGTON • Senior officials in the Trump administration have agreed to new measures to restrict the global supply of chips to China's Huawei Technologies, said sources familiar with the matter, as the White House ramps up criticism of China over the coronavirus.

The move comes as ties between Washington and Beijing grow more strained, with both sides trading barbs over who is to blame for the spread of the virus and an escalating tit-for-tat over the expulsion of journalists from both countries.

Under the proposed rule change, foreign firms that use United States chip-making equipment would have to get a US licence to supply certain chips to Huawei. The Chinese telecommunications company was blacklisted last year, limiting the company's suppliers.

One of the sources said the rule change is aimed at curbing sales of chips to Huawei by Taiwan Semiconductor Manufacturing Company (TSMC), a major producer of chips for Huawei's HiSilicon unit as well as the world's largest contract-maker.

It is unclear if US President Donald Trump, who appeared to push back against the proposal last month, will sign off on it. But if finalised, it could deal a blow to Huawei and TSMC, hurting US firms as well, said sources.

"This is going to have a far more negative impact on US companies than it will on Huawei as Huawei will develop their own supply chain," said trade lawyer Doug Jacobson. "Ultimately, Huawei will find alternatives."

A person familiar with the matter said the US government has gone to great lengths to ensure impacts on US industry will be minimal.

The move could anger Beijing, which has spoken out against a global campaign by the US to compel allies to exclude Huawei from their 5G networks over spying concerns. Huawei has denied the allegations.

Most chipmakers rely on equipment produced by US firms such as Lam Research and Applied Materials, according to a report last year from China's Everbright Securities. The equipment-makers did not immediately respond to requests for comment.

The decision came when US officials from various agencies met and agreed on Wednesday to alter the Foreign Direct Product Rule, which subjects some foreign-made goods based on US technology or software to US regulations, said the sources.

Attendees likely included top officials from the National Security Council and the State, Defence, Energy and Commerce departments. None of them responded to requests for comment.

Huawei declined to comment.

TSMC said it "is unable to answer hypothetical questions and does not comment on any individual customer".

One of the sources said the rule change is aimed at restricting the sale of sophisticated chips to Huawei and not older, more commoditised and widely available semiconductors.

"It's impossible to tell the impact until we know the technical thresholds that may apply," said Washington lawyer Kevin Wolf, a former Commerce Department official.

"Different foundries make different chips at different capabilities so you wouldn't know which foundries are affected the most until you know the technical thresholds."

REUTERS