U.S. Considers Cutting Huawei off from Global Chip Supply

U.S. Considers Cutting Huawei off from Global Chip Supply

As the trade dispute between the US and China rages on, Huawei has continued to take the center stage of the US offensive attacks from many angles. Reuters reported that the US Government is considering reviewing its regulatory rules to enable it shut supply of chips to Huawei from other companies such as Taiwan’s TSMC.

Huawei has been trying to stay in business on little options since it was ousted from the US in May 2019, owing to the risks that its tech activities pose to the US national security. The Chinese company has been accused of being a spy agent for the Chinese Government using its telecommunication technology to obtain secret information about other countries.

The US has been wary of Huawei’s activities even outside its shores. Last month, the Trump administration warned the UK Government that it would stop intelligence sharing partnership if London allows the Chinese tech giants to get involved in its 5G roll out.

The British government in a defiant move announced that Huawei will be allowed to account for 35% of the kit in a network’s periphery that includes radio masts. But the deal excludes any chance of Huawei supplying sensitive network materials (core). And the company will not be allowed to operate near military bases and nuclear sites.

UK’s partnership with Huawei has opened the door for other European countries to accept the Chinese company’s partnership in their 5G roll out.

The US appears to have a plan B in keeping the tech giants out of global influence. The new attempt to stop the Chip supply partnership between Taiwan’s TSMC, the world’s largest contract chipmaker, and Huawei, the world’s no. 2 smartphone maker, is the latest attempt by the Trump’s administration to keep Huawei out of business.

Sources familiar with the matter said the new regulation will stop chips shipment to Huawei, which would be a big blow to both the Chinese company and TSMC, a big player in the chip making industry. TSMC has been a major supplier of chips to Huawei’s HiSilicon unit and mobile phone rivals Apple Inc and Qualcomm Inc.

The new commerce sanction involving Huawei is said to be among several options on the consideration table at the high-level meetings to be held this week and the next in Washington. Sources said the chip proposal has been drafted though its approval is far from certain.

“What they’re trying to do is make sure that no chips go to Huawei that they can possible control,” a source familiar with the matter told Reuters.

However, the process of blocking sales of chips to Huawei comes with a price: The already existing Foreign Direct Product Rule that places some foreign-made goods using US tech ideas under US regulation must be altered. The new draft proposal means the US Government would force companies using US chip making equipment, ideas or license to obtain license before they could supply to Huawei.

China has deeply relied on US chip making companies for years, like KLA, (KLAC.O) Lam Research (LRCX.O) and Applied Materials (AMAT.O) according to a report from China’s Everbright Securities.

“There is no production line in China that uses only equipment made in China, so it is very difficult to make any chipsets without US equipment,” said the report.

The latest trade deal signed by the US and China does not allow China to steal ideas from the US. So to keep the trade agreement, Chinese companies will be forced to play along the rules of the new draft if approved. But US allies around the world are likely going to be spiked by it.

Huawei has been struggling by expanding its reach. China is also trying to assert technological independence by investing billions of dollars into research for its software and chip development.

The future appears uncertain for both the US and China, in case China finds a solution to its software problem, the US tech industry will lose a huge economic interest from around the world. If China fails, the US will continue to enjoy its dominance in the global tech industry and to detect for others according to its own interests.

The US fall out with Huawei has forced some US and foreign companies to seek special licenses from the Commerce Department to do business. China has become the biggest loser, giving in to the US in many fronts due to many of its tech short falls.

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