Tensions between the US and China escalated again on Friday, as the Commerce department amended export rules in order to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain US software and technology”.
Essentially, Wilbur Ross is accusing Huawei of using end-arounds to skirt restrictions put in place a year ago, when the US moved to blacklist the company during some of the trade war’s darkest days.
“Despite the Entity List actions the Department took last year, Huawei and its foreign affiliates have stepped-up efforts to undermine these national security-based restrictions through an indigenization effort”, Ross said Friday. He added the following:
However, that effort is still dependent on US technologies. This is not how a responsible global corporate citizen behaves. We must amend our rules exploited by Huawei and HiSilicon and prevent US technologies from enabling malign activities contrary to U.S. national security and foreign policy interests.
You have to love the brazenness of that assessment. This is, after all, related to an across-the-board effort on the part of the Trump administration not just to cripple Huawei’s business with US companies, but also to convince the rest of the world to similarly declare one of China’s national champions a pariah. And yet, Ross says it’s Huawei which isn’t being a “responsible global citizen”.
In any event, the following foreign-produced items are now subject to the Export Administration Regulations:
- semiconductor designs, when produced by Huawei and its affiliates on the Entity List (e.g., HiSilicon), that are the direct product of certain U.S. Commerce Control List (CCL) software and technology
- chipsets, when produced from the design specifications of Huawei or an affiliate on the Entity List (e.g., HiSilicon), that are the direct product of certain CCL semiconductor manufacturing equipment located outside the United States. Such foreign-produced items will only require a license when there is knowledge that they are destined for reexport, export from abroad, or transfer (in-country) to Huawei
You’ll recall that US corporates immediately found a way around the Huawei ban last year, and the administration has extended a series of temporary reprieves aimed at avoiding a scenario where rural areas in the US have logistical difficulties providing services. But with tensions rising and recrimination tied to the pandemic gathering political momentum inside the Beltway, it’s not surprising that the administration is taking fresh steps.
Perhaps recognizing that this has the potential to deal another blow to the global economy at a particularly delicate juncture, Ross says “foreign foundries utilizing US semiconductor manufacturing equipment that have initiated any production step for items based on Huawei design specifications… are not subject to these new licensing requirements so long as they are reexported, exported from abroad, or transferred (in-country) by 120 days from the effective date”.
That’s small comfort. Xi’s media man Hu Xijin responded immediately with a threat to unveil China’s “unreliable entity list“, something Beijing has variously threatened to deploy over the course of the 12 months since the original restrictions on Huawei.
“If the US further blocks key technology supply to Huawei, China will activate the ‘unreliable entity list’, restrict or investigate US companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes”, Hu said.
Needless to say, this is just about the last thing Boeing needs right now, and Tim Cook has spent the last year attempting to navigate these absurdly treacherous waters.
On Thursday, Hu mocked Trump. “This president once suggested COVID-19 patients inject disinfectants to kill the virus”, he sneered. “Remember this and you won’t be surprised when he said he could cut off the whole relationship with China. All I can say is he is beyond my imagination for a normal president”.
Nomura’s Charlie McElligott called this “dangerous sparring into Op-Ex”.
You can expect more “dangerous sparring” to come, especially in light of this week’s incessant anti-China rhetoric out of Washington.
During an interview with Fox on Thursday, Trump said he doesn’t want to speak to Xi, and lawmakers in the US are pressing for sanctions against Chinese officials in connection with human rights abuses in Xinjiang. A separate piece of legislation championed by Lindsey Graham calls for additional sanctions in the event Beijing doesn’t provide a satisfactory account of COVID-19’s origins.
At the same time, the White House is moving forward with capital restrictions.
All of this comes ahead of the National People’s Congress. Brace for impact.