The news came as a large Taiwanese semiconductor manufacturer announced it would build a $12 billion factory in Arizona that would create 1,600 jobs. Both the company, TSMC, and Commerce Secretary Wilbur Ross described the investment as critical to reinforcing U.S. high-tech manufacturing.
Both developments highlight the increasingly tense technology competition between the United States and China. Asked in an interview with Fox Business what the United States is doing to reduce its manufacturing reliance on China, Ross on Friday pointed to the TSMC news.
“Arizona, since it already has Intel, already has ON Semiconductor, will now have a very powerful technology complex that we hope will be very vertically integrated. And that should facilitate even more activity,” Ross said.
TSMC said the U.S. and Arizona governments were providing unspecified “support” for the factory. At the same time, the new Commerce restrictions could hurt TSMC, because the company sells a large volume of semiconductors to Huawei from its factories in Taiwan, where it uses U.S. equipment and software.
Huawei, a large manufacturer of telecom network gear and smartphones, did not immediately provide comment on the Commerce announcement. It has repeatedly denied U.S. accusations that its telecom equipment could undermine U.S. national security by allowing the Chinese Communist Party to tap into the gear for espionage purposes.
In a tweet, the editor of a state-controlled Chinese newspaper said Beijing could take retaliatory measures. The editor’s comments on trade issues often have been a reliable indicator of Beijing’s policy plans.
“Based on what I know, if the US further blocks key technology supply to Huawei, China will activate the ‘unreliable entity list’, restrict or investigate US companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes,” Hu Xijin, editor of the Global Times, wrote.
The Commerce Department said it is amending a regulation so overseas manufacturers of semiconductors, if they use U.S. equipment or technology to produce chips according to Huawei designs, will need a license from the United States before selling them to the Chinese company.
The key element is in blocking the sale of chips made according to Huawei designs, said Kevin Wolf, a former senior Commerce official who is now a partner at Akin Gump Strauss Hauer & Feld.
The new rule does not stop U.S. semiconductor manufacturers from selling chips to Huawei that are made outside the United States according to U.S.-company designs, he said. It stops only the sale of Huawei-designed chips made outside the United States with the help of U.S. equipment, Wolf said.
That could help U.S. semiconductor companies preserve some sales to Huawei from their overseas factories while forcing Huawei to scramble to replace the billions of dollars of chips it designs and orders from various chip factories, many of which use U.S. chip-making equipment and software.
A chip “based on a Huawei design can’t go forward, but one based on another company’s design can,” Wolf said.
A lobbying group for U.S. semiconductor companies, such as Intel and Qualcomm, issued a muted response to the news.
“We are concerned this rule may create uncertainty and disruption for the global semiconductor supply chain, but it seems to be less damaging to the U.S. semiconductor industry than the very broad approaches previously considered,” John Neuffer, chief executive of the Semiconductor Industry Association, said in a statement.
The new restrictions could hurt TSMC, which makes a large volume of chips for Huawei according to Huawei designs, with the use of U.S. equipment and software.
The company did not immediately respond to a request for comment Friday.
Asked why the United States was planning to undermine TSMC sales at the same time that the Taiwanese company is planning a large investment in the United States, State Department officials speaking on a call with journalists Friday said the matters were unrelated.
Asked whether the United States would solve the problem by granting TSMC a license to continue its chip sales to Huawei, one State Department official described that as unlikely.
“Roughly 10 to 12 percent of TSMC’s business is China, and I think that is in essence primarily Huawei,” said Keith Krach, the undersecretary for economic growth, energy and the environment. “So they will be restricted unless they are granted a license, and there is no assurance on that, and we don’t anticipate that.”
Krach said TSMC’s U.S. factory investment “strengthens our relationship with Taiwan,” which he described as a “force for good” and for democracy in Asia.
The new Commerce restrictions could hurt U.S. manufacturers of chip-making equipment, a sector the United States dominates. The Commerce rule will incentivize chip factories to buy that equipment from other countries, industry experts said.
Christopher Ford, assistant secretary for international security and nonproliferation at the State Department, said it would be hard for chip factories to completely avoid using U.S. equipment and software, which he said is necessary to make the most cutting-edge type of chips.
Commerce’s latest action comes one year after it originally placed Huawei on a trade blacklist. The measures have hurt the Chinese company’s cellphone sales outside of China and complicated its effort to sell telecom network gear for super-fast 5G networks. Still, Huawei has vowed to survive the blockade.
Last month, Huawei said its first-quarter revenue grew by 1.4 percent over the year-earlier quarter, a slowdown from the 39 percent growth it reported in the first quarter of 2019. The coronavirus crisis has also hurt the company’s sales.
Eva Dou contributed to this report.