It's been a year as of this weekend since the United States blacklisted Huawei Technologies. So for good measure, the U.S. Commerce Department is upping the ante by banning sales of chips to Huawei that are made with U.S. technology, even if they're made outside the United States.
China is set to retaliate. That means the trade war over China's best-known telecom brand has started a new skirmish, one that could cause collateral damage to major U.S. tech names such as Apple (AAPL) .
Shenzhen-based Huawei started its annual analyst meeting on Monday, and will be streaming it from headquarters over the next three days. It's normally when Huawei unveils its latest innovations, to great fanfare.
Instead, it is fending off the latest salvo from U.S. Secretary of Commerce Wilbur Ross. To get around the blacklisting on national security grounds last year, Ross says Huawei has responded with an "indigenization effort," in which it gets chipsets made to its specifications outside the United States, using U.S. software and technology.
"This is not how a responsible global corporate citizen behaves," Ross said. So he announced a change in the rules to restrict semiconductor purchases abroad if linked to U.S. tech, to stop them from "enabling malign activities." There will be a 120-day grace period before that kicks in.
The share price of chipmakers such as SK Hynix from South Korea were hurt on Monday, falling 1.0% in Seoul on a day Korean shares rose 0.7%. Taiwan Semiconductor Manufacturing Co. (TSM) , the world's biggest contract chipmaker, fell 2.7% in Taipei, with the Nikkei reporting that TSMC has stopped new orders from Huawei in response to Washington's moves.
TSMC said on Friday it will build a US$12 billion plant in Arizona. The U.S. Commerce Department said such a move demonstrated "good will," suggesting it may get a break on dealing with Huawei.
China vows revenge. It will take a "series of countermeasures," according to the official Global Times newspaper, used to spread China's foreign-policy intent abroad. They include imposing restrictions on U.S. companies such as Apple, and stopping airplane purchases from Boeing BA, the paper says, quoting a "source close to the Chinese government," which means the Chinese government.
It's the first time that specific U.S. target companies have been identified. The headline states that "China readies biggest counterattack against US."
China may add U.S. companies to its own "unreliable entity list," and launch "endless investigations" into or impose restrictions on Qualcomm (QCOM) , Cisco (CSCO) and Apple, to name a few. It may scrutinize them under China's Cybersecurity Review Measures and its Anti-monopoly Law. These punitive measures against large U.S. techs would be the "nuke bomb," and would let the U.S. companies "feel the pain," according to sources quoted by the Global Times.
Officially, China's Ministry of Commerce on Sunday urged the United States to stop its "wrong actions" and abuse of export controls. China said it would take "all necessary measures" to defend the legal rights of Chinese companies.
The U.S. Commerce Department's Bureau of Industry and Security added Huawei and 68 of its subsidiaries in different countries to its "Entity List" on May 16, 2019. It explained that "there is reasonable cause to believe that Huawei has been involved in activities contrary to the national security or foreign policy interests of the United States." It noted that Huawei has been indicted in New York court for exporting products from the United States to Iran, in violation of sanctions.