US targets Huawei with tighter chip export rules; China could retaliate

FILE PHOTO: Huawei booth at the Mobile World Congress | Photo: Reuters
The United States on Friday announced new rules targeting Chinese telecommunications equipment company Huawei Technologies, in a move that could ruffle up more feathers in the Asian nation.

The US Department of Commerce announced new export rules to restrict Huawei's acquisition of American technology to build its semiconductors and chipsets, a Reuters report said.

The Trump administration will continue to restrict exports to Huawei, with a new rule issued yesterday, which will block companies around the world from using American-made machinery and software to design or produce chips for the Chinese telecom firm of its entities.

It is the latest action to target Huawei, which is considered as a national security threat by the US. There are now fears of Chinese retaliation and hammering shares of US tech companies producing chipmaking equipment. The reaction from China was swift, saying it was ready to put US companies on an "unreliable entity list," as part of countermeasures in response to the new limits on Huawei.

The new rule prohibits semiconductor manufacturers that use US technology and software in chip design from shipping to Huawei without US government's permission, the BBC reported. The latest move by the Trump administration would require US authority to have licences for sales to Huawei of semiconductors made abroad with US technology, vastly expanding its reach to halt exports to China.

The US Department of Commerce announced that it would extend a licence that allows some American companies to continue to do business with Huawei for another 90 days.

US Secretary of State Michael Pompeo in a statement on Friday said the United States will continue to restrict most US exports to Huawei and its affiliates on the Entity List for activities that threaten US national security and international stability.

"The US government today took another step to protect US national security and the integrity of 5G networks by expanding the Commerce Department's foreign direct product rule to restrict Huawei from circumventing US law," Pompeo said.

He also said that the US will not tolerate efforts by the Chinese Communist Party to undermine the privacy of its citizens or the integrity of next-generation networks worldwide.

The tightened controls come a year after the US moved to cut off Huawei, the world's second largest smartphone maker, from access to US-made semiconductor chips, which form the backbone of most computer and phone systems.

US Commerce Department Secretary Wilbur Ross said that those efforts were "still dependent on US technologies", and accused Huawei of taking steps "to undermine" earlier export controls.

"This is not how a responsible corporate citizen behaves. "We must amend our rules exploited by Huawei... and prevent US technologies from enabling malign activities contrary to US national security and foreign policy interests", Ross said.

The Wall Street Journal recently reported that Huawei's handset shipments outside of China had dropped by 35 per cent, threatening its position as the world's second-biggest handset maker.

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 develop new equipment sources beyond the reach of US rules.

In May last year, Washington blacklisted Huawei and about 70 of its affiliates from purchasing US technology and doing business with US companies without relevant government authorisation.

The Trump administration accuses Huawei of collaborating with Chinese intelligence services and using its equipment for illegal surveillance purposes thus posing a threat to US national security and global stability. However, the company refutes the allegation as unjustified and politically motivated. The US has said Huawei's technology could be used for spying by the Chinese government.

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