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U.S. tightens restrictions on Huawei yet again, underscoring the difficulty of closing trade routes

U.S. officials said they are aiming to stop the Chinese company from evading trade ban

Visitors in a Huawei store in Beijing. (Ng Han Guan/AP)

The Trump administration on Monday took its harshest step yet to block Huawei’s access to semiconductor chips, in another sign of the complexity of severing the Chinese technology company from global supply chains.

The Commerce Department banned the export of U.S. technology to Huawei in May 2019, calling the Chinese company a security threat. But it has had to tighten the rules several times since, as Huawei has found ways to continue buying components made with U.S. technology.

Some industry executives said the latest restrictions are the toughest yet and could deal a crippling blow to Huawei by cutting it off from most of the world’s semiconductors, which are critical to the operation of electronic devices. The Chinese company has found ways around previous restrictions, however, and has continued to report sales growth, bolstered by its large domestic market.

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China has also been pouring billions into developing its own semiconductor manufacturing and design, and while industry executives say it is years behind and still reliant on Western technology, China has caught up in other sectors.

The U.S. semiconductor sector panned the new rules, saying they were broader than necessary to protect national security and would harm an important American industry. Huawei didn’t provide an immediate comment.

The new restrictions are another sign that the Trump administration’s crackdown on China is accelerating in the run-up to the U.S. presidential election, in which Trump has attempted to distinguish himself as the tough-on-China candidate.

The administration’s actions in recent weeks include sanctioning Chinese companies for allegedly facilitating human rights violations against minority groups in China’s Xinjiang region; warning U.S. executives not to lobby for China; and banning TikTok from operating in the United States unless it is acquired by an American company by a September deadline.

The campaign against Huawei has deeper roots. The original May 2019 blacklisting prevented the export to Huawei of any technology from the United States without a license. But Huawei still found ways to buy semiconductors and other parts containing U.S. technology that were manufactured outside the United States.

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In May of this year, Commerce tried to close that loophole by amending its regulations to say that overseas manufacturers of semiconductors, if they use U.S. equipment or software to produce chips according to Huawei designs, would need a license from the United States before selling them to the Chinese company.

Commerce tightened the rules again Monday, saying it will require such manufacturers to get a license even if they are selling chips that were not designed by Huawei but are intended for Huawei’s use.

Industry officials said that will cut Huawei off from most chips made worldwide because semiconductor factories can’t escape using U.S. software and equipment in their production process.

“This kills Huawei,” said one industry executive, speaking on the condition of anonymity because he wasn’t authorized to speak to reporters. “Any chip made anywhere in the world by anyone is subject to this.”

Kevin Wolf, a former senior Commerce official who is now a partner at Akin Gump Strauss Hauer & Feld, also described U.S. software and equipment as essential in chip factories worldwide and said the new prohibition is therefore extremely broad.

“Every foreign-made semiconductor of any type anywhere in the world is now subject to U.S. license requirements if a Huawei company is in any way involved, directly or indirectly, in the transaction,” he said.

The Commerce Department said the action would “prevent Huawei’s attempts to circumvent U.S. export controls to obtain electronic components developed or produced using U.S. technology.”

The agency on Monday also added 38 new Huawei entities to the trade blacklist, including many of Huawei’s cloud-computing subsidiaries around the world. Any company selling U.S. technology to those subsidiaries will now need a license from the Commerce Department.

Secretary of State Mike Pompeo characterized the new rules as attempting to close loopholes, saying Huawei had “continuously tried to evade” the blacklisting.

Pentagon drops opposition to new rules that would further restrict tech sales to Huawei

The Semiconductor Industry Association criticized the latest measure.

“We are still reviewing the rule, but these broad restrictions on commercial chip sales will bring significant disruption to the U.S. semiconductor industry. We are surprised and concerned by the administration’s sudden shift from its prior support of a more narrow approach intended to achieve stated national security goals while limiting harm to U.S. companies," the group said.

“We reiterate our view that sales of non-sensitive, commercial products to China drive semiconductor research and innovation here in the U.S., which is critical to America’s economic strength and national security,” the group added.

The industry executive has been pushing the administration to allow U.S. companies to sell chips Huawei uses to make cellphones and other consumer devices, arguing that those pose no threat to U.S. national security.

The Trump administration has focused on Huawei’s telecom network equipment as posing a security threat, saying Chinese officials could tap into that equipment installed overseas to spy or to disrupt infrastructure. Huawei has dismissed those allegations.

Semiconductor chips are designed with highly automated software that programs billions of lines of code.

The industry executive said only three companies in the world make that software, known as electronic design automation, and all are subject to U.S. export controls because of their U.S. operations.

Two — Synopsys Inc. and Cadence Design Systems — are headquartered in California. A third, Mentor Graphics, was acquired by the German company Siemens in 2017, but all of its operations are in the United States, which is what counts for export control purposes, the executive said.

Moreover, there are only a handful of manufacturing toolmakers in the world for semiconductor production, each of which is the only one of its kind and is a necessary part of the process, the executive said. Three of these companies are based in California: KLA-Tencor, Applied Materials and Lam Research. Remove any one of these companies and it’s impossible to build a chip, the executive said.

“It’s like a puzzle,” the executive said. “If you’re missing one piece, you can’t build the puzzle.”

The Dutch company ASML also makes a critical tool used in semiconductor production.

Stephen Ezell, vice president at the Information Technology and Innovation Foundation, a think tank, said the U.S. step represents a “significant escalation” in trade tensions.

“While the administration is right to insist that Huawei, and China more broadly, compete within established global trade rules, and appropriately take countermeasures when they don’t, blanket tech export/use restrictions on Huawei run the risk of harming U.S. firms, which make $11 billion in annual sales to Huawei and of encouraging China to redouble its efforts to develop a completely indigenous semiconductor ecosystem,” he said by email.