Newly proposed rule in U.S. Foreign Direct Product Rule will cut off supply of sophisticated chips to Huawei

Senior administrators in the Trump administration have agreed to further tighten restrictions of semiconductors on Huawei Technologies.

Under the newly proposed rules, foreign companies that use U.S. chipmaking equipment will now have to obtain a U.S. license before supplying certain chips to Huawei.

According to one of the sources, rule will slash the supply of chips made by Taiwan Semiconductor Manufacturing Co, the world’s largest contract maker, to Huawei’s HiSilicon unit.

It is to be seen whether U.S. President Donald Trump, who last month appeared to push back against the proposal, will sign on the newly proposed rule. Once it is out into play, the new rule is likely to deal a blow to Huawei and TSMC as well as some U.S. companies.

According to a source familiar with the matter at hand, the U.S. government has gone to great lengths to ensure impacts on U.S. industry is minimal.

The majority of chip manufacturers rely on equipment produced by American companies, including KLA Corp, Applied Materials, and Lam Research, going by a 2019 report prepared by China’s Everbright Securities.

Everbright Securities did not immediately respond to requests for comment.

The newly proposed rule comes in the wake of a multi-departmental meeting by U.S. officials to alter the Foreign Direct Product Rule, which subjects some foreign-made goods based on U.S. technology or software to U.S. regulations, said sources.

Huawei declined to comment.

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

According to one of the sources, the proposed new rule is aimed at restricting the sale of sophisticated chips to Huawei and does not target commoditized and widely available semiconductors.

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

“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,” said Wolf.

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