US mulls cut Huawei off global chip suppliers, TSMC in the crosshairs

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By Alexandra Alper and Karen Freifeld

WASHINGTON, February 17 (Reuters). The Trump administration is considering changing U.S. regulations to block the supply of chips to Huawei Technologies from companies like Taiwan’s TSMC, the world’s largest contract chip maker.

New restrictions on China’s Huawei trade are among several options that should be considered at high-level U.S. meetings this week and next. The chip proposal has been drawn up, but its approval is far from certain, one source said.

The measure would be a blow to the world’s number 1. 2 smartphone manufacturers, as well as TSMC, a major manufacturer of chips for Huawei’s HiSilicon device and mobile phone rivals Apple Inc and Qualcomm Inc.

“They are trying to ensure that no chips go to Huawei that they can possibly control,” said the second source.

Huawei is at the heart of a struggle for global technological dominance between the United States and China. The United States is trying to convince allies to exclude its equipment from next-generation 5G networks because its equipment could be used by China to spy on. Huawei has repeatedly denied the claim.

To achieve the worldwide sale of chips to Huawei, the U.S. authorities would change the Foreign Direct Product Rule, according to which some overseas goods based on US technology or software are subject to US regulations.

Reuters reported possible changes to this rule in November.

According to the draft proposal, the U.S. government would force foreign companies using U.S. chipmaking devices to apply for a U.S. license before supplying Huawei – a major expansion of the export control agency that could anger U.S. allies worldwide.

The commercial department declined to comment on the proposal.

A commerce spokesman, however, said that recent US lawsuits against Huawei, including the conspiracy to steal trade secrets, “reaffirm the need to exercise caution when examining license applications. The US continues to have great concerns about Huawei.”

Huawei and TSMC did not respond to requests for comments.

The US blacklisted Huawei last May, citing national security concerns. This forced some U.S. and foreign companies to obtain special licenses from the Department of Commerce to sell, but China’s hawks in the U.S. government were frustrated with the large number of supply chains that were out of their reach.

Other Trump administration members fear fighting Beijing, which has just signed a trade agreement with Washington. They also fear that the restrictions will drive innovation offshore and benefit foreign competitors.

According to a report from Everbright Securities in China last year, most chip makers rely on devices made by US companies such as KLA, Lam Research and Applied Materials.

“There is no production line in China that only uses devices made in China, so it is very difficult to make chipsets without US devices,” wrote Everbright. (Additional reporting by Stephen Nellis; writing by Alexandra Alper; editing by Gary McWilliams and Sonya Hepinstall)

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