White House Plans To Cut Off Sales Of American Chip Technology To China

Just hours after Beijing lifted more trade-war restrictions on importing US farm products due to the outbreak...

...the White House has paid President Xi back by launching an economic assault on Huawei and other Chinese telecom companies that threatens to revive the trade war and strain the relationship between Beijing and Washington in the middle of a global pandemic.

Despite all of this, Nasdaq futs are up strongly pre-open, confirming what we already knew: this Fed-assisted market cares about only one thing, and it's not fundamentals. Still, American companies that produce chips and the technology to make them could lose access to a major market.

As the Pentagon scrambles to pressure its European partners not to allow the use of Huawei parts in their domestic 5G networks, reports from the last few days have claimed the White House is preparing to ratchet up the economic  pressure on Huawei. Now, WSJ is reporting that Washington's wrath could hammer the entire Chinese telecom sector as the administration is considering a complete ban on selling American chip-making equipment and technology to Chinese firms.

Once again, the Commerce Department is on the front lines of the pressure campaign: The department is reportedly drafting changes to the 'foreign direct product rule', which restricts the use of US technology by foreign companies for national security reasons.

As WSJ explains, the policy would be part of a broader effort to cut China off from foreign technology that they haven't yet managed to replicate or steal. Chip-manufacturing technology is one such area where Chinese companies like Huawei are still dependent on American suppliers. Jet engine technology is another.

Still, the proposal shows the blunt tools the Trump administration is prepared to use in its bid to cut China off from America’s semiconductor sector. Semiconductor technology is a key area where China has struggled to cut its reliance on foreign suppliers despite years of effort. Semiconductors rank among China’s largest imports from the U.S.

"They don’t want any fab in the world to produce anything for Huawei - that’s the goal," one person said, speaking of the chip fabrication plants that likely would be affected by the new trade limits.

The Trump administration also is considering cutting off China from jet-engine technology, another area where Beijing has struggled to shed reliance on U.S. and European manufacturers.


U.S. chip-manufacturing tool makers, such as Applied Materials Inc. AMAT -0.77% and Lam Research Corp., LRCX -0.67% are among the biggest in the industry. The equipment they make is some of the most expensive machinery in the world. Setting up a modern chip factory typically costs many billions of dollars, and new restrictions on U.S. equipment could drive customers toward alternatives.

"It would be a huge disincentive for any fab to use U.S. equipment because there would be a limitation on that versus Japanese or Chinese equipment," one of the people said.

The changes has reportedly been 'under discussion' for weeks. Furthermore, this policy would accompany a separate ruling that would restrict chip sales to Huawei, as we've reported in recent days.

We suspect we'll be hearing more about this soon.