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 bob.davis@wsj.com and Katy Stech Ferek at
katherine.stech@wsj.com
(END) Dow Jones Newswires
May 15, 2020 12:21 ET (16:21 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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