The Trump administration intensified its battle with Huawei Technologies by issuing a new rule that bans Huawei and its global suppliers from using U.S.-made machinery and software to design or produce chips. Companies can apply for an exception to the measure, but the Trump administration stated these requests will likely be denied. Semiconductor Industry Association president and CEO John Neuffer said his group is worried that the rules would “create uncertainty and disruption for the global semiconductor supply chain.”

The New York Times reports Neuffer added that the new rule “appeared less damaging than broader approaches the administration had previously considered.” The Trump administration put Huawei on an “entity list” last May, “barring exports of American products to the company and 114 of its affiliates unless suppliers had first obtained a license.”

Huawei stepped up activities at HiSilicon, its own chip manufacturing unit. But HiSilicon “still relies on outside manufacturers, including the Shanghai-based Semiconductor Manufacturing International Corporation, or SMIC, and the Taiwan Semiconductor Manufacturing Company, or TSMC, to mass-produce chips to its specifications.”

Last week, the U.S. Commerce Department stated that Huawei has tried to “undermine” the existing rules by “using American software and technology to make its own semiconductors and buying products from foreign foundries that used American equipment.”

“There has been a very highly technical loophole through which Huawei has been able, in effect, to use U.S. technology with foreign fab producers,” said Commerce Department secretary Wilbur Ross, who added that the new rule is an attempt “to correct that loophole and make sure that the American fab foundries are competing on an equal footing with the foreign ones.”

In addition to the rule’s impact on SMIC and TSMC, it “may also clamp down on sales by makers of semiconductor equipment, like Applied Materials, KLA and Lam Research, as well as chip design software companies.” Trump has stated that China didn’t do “enough to stop the spread of the coronavirus and has suggested that the United States may punish the Chinese government … [even] threatening to scrap the trade deal the two countries signed in January.”

NYT predicts that the rule “could prompt a backlash against American technology companies that depend on sales to China, such as Qualcomm and Apple.” “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,” tweeted Global Times editor-in-chief Hu Xijin.

Related:
Huawei Braces for Latest U.S. Hit, but Some Say Loopholes Remain, The Wall Street Journal, 5/18/20
Huawei Warns of ‘Terrible Price’ If U.S.-China Tensions Escalate, Bloomberg, 5/18/20