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U.S. Government Imposes Tight New Restrictions on Huawei

By Eric Volkman – Aug 18, 2020 at 7:01PM

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The Department of Commerce bars any products using U.S. components from being sold to the controversial Chinese company.

The U.S. Department of Commerce and the Bureau of Industry and Security imposed new restrictions on Chinese tech giant Huawei. The company and its affiliates are no longer permitted to buy any product "where U.S. software or technology is the basis for a foreign-produced item." The new restriction went into effect on Monday.

A press statement subsequently issued by Secretary of State Mike Pompeo supporting Commerce's latest measure says that "[t]he Trump Administration sees Huawei for what it is – an arm of the Chinese Communist Party's (CCP's) surveillance state."

Chess pieces atop U.S. and Chinese flags.

Image source: Getty Images.

"We will not tolerate efforts by the CCP to undermine the privacy of our citizens, our businesses' intellectual property, or the integrity of next-generation networks worldwide," Pompeo added.

In 2019, Commerce included Huawei on the government's Entity List, consisting of companies that U.S. entities are prohibited from selling their technology, unless they possess a special license granted by the government. In May, this restriction was widened to include foreign companies using U.S. equipment and intellectual property. Monday's expansion effectively covers all U.S.-derived material in transactions involving Huawei.

The new measure will affect companies that have previously partnered with Huawei, and even the ones that stopped doing so in the previous escalations.

Taiwan Semiconductor Manufacturing (TSM -1.23%) could face retaliatory action from the Chinese government as it has factories in China. The king of mobile chips, Qualcomm (QCOM -1.17%), is in a less risky position, but it is still smarting from the loss of most of its Huawei business and has been -- so far unsuccessfully -- lobbying the government to pull back on its restrictions against the company.

Not surprisingly, TSMC and Qualcomm both fell on Tuesday, albeit modestly. TSMC slipped by nearly 1%, while Qualcomm shed 0.1%.

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

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