Senior officials in the Trump administration agreed to new steps to restrict the global supply of chips to China’s Huawei Technologies, sources acquainted with the matter stated, as the White House ramps up criticism of China over coronavirus.

The move comes as ties in between Washington and Beijing grow more strained, with both sides trading barbs over who is to blame for the spread of the illness and an intensifying tit-for-tat over the expulsion of reporters from both countries.

Under the proposed rule change, the foreign businesses that utilize U.S. chipmaking equipment would be required to acquire a U.S. license prior to providing specific chips to Huawei. The Chinese telecoms company was blacklisted last year, restricting the business’s providers.

Among the sources stated the rule-change is targeted at suppressing sales of chips to Huawei by Taiwan Semiconductor Production Co, a major manufacturer of chips for Huawei’s HiSilicon unit, along with the world’s biggest contract maker.

It is unclear if President Donald Trump, who appeared to push back against the proposal last month, will sign off on the guideline modification. However, if settled, it might deal a blow to Huawei and TSMC, injuring U.S. business also, sources stated.

“This is going to have a far more negative impact on U.S. companies than it will on Huawei because Huawei will develop their own supply chain,” trade lawyer Doug Jacobson stated. “Ultimately, Huawei will find alternatives.”

An individual familiar with the matter stated the U.S. federal government has actually gone to great lengths to ensure impacts on the U.S. market will be minimal.

The move might anger Beijing, which has spoken up against a global campaign by the United States to force allies to leave out Huawei from their 5G networks over spying issues. Huawei has actually rejected the claims.

Many chip manufacturers rely on equipment produced by U.S. companies such as KLA Corp, Lam Research, and Applied Products, according to a report last year from China’s Everbright Securities.

The equipment makers did not immediately react to comment.

The decision came when U.S. officials from numerous agencies on Wednesday to modify the Foreign Direct Product Rule, which subjects some foreign-made items based on U.S. technology or software to U.S. policies, the sources stated.

Participants likely included top officials from the National Security Council and the U.S. Departments of State, Defense, Energy, and Commerce. None of them responded to comment.

Huawei declined to comment TSMC stated it “is unable to answer hypothetical questions and does not comment on any individual customer.”

Among the sources stated, the rule-change is targeted at limiting the sale of advanced chips to Huawei and not older, more commoditized, and extensively offered semiconductors.

“It’s impossible to tell the impact until we know the technical thresholds that may apply,” stated Washington attorney Kevin Wolf, a former Commerce Department official.

“Different foundries make different chips at different capabilities, so you wouldn’t know which foundries are affected the most until you know the technical thresholds,” he stated.

U.S.-CHINA TENSIONS

The United States placed Huawei on a blacklist in May last year, mentioning national security issues. The entity listing, as it is understood, permitted the U.S. federal government to limit sales of U.S.-made items to the business and some more minimal products made abroad, which contain U.S. technology.

However, under present policies, essential foreign supply chains stay beyond the reach of U.S. authorities, sustaining disappointment amongst China hawks in the administration and triggering a push to condition export guidelines for the business reported in November.

The Hawks’ efforts appeared in jeopardy last month when Trump responded highly versus the proposed crackdown after the Wall Street Journal reported that a move to block global chip sales to Huawei was under consideration.

“I want our companies to be allowed to do business. I mean, things are put on my desk that have nothing to do with national security, including with chipmakers and various others. So we’re going to give it up, and what will happen? They’ll make those chips in a different country, or they’ll make them in China or someplace else,” Trump stated.

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