WASHINGTON (Reuters) – The Trump administration on Friday moved to dam international chip provides to blacklisted telecoms tools large Huawei Technologies, spurring fears of Chinese retaliation and hammering shares of U.S. producers of chipmaking tools. A brand new rule, unveiled by the Commerce Department and first reported by Reuters, expands U.S. authority to require licenses for gross sales to Huawei of semiconductors made overseas with U.S. expertise, vastly increasing its attain to halt exports to the world’s No. 2 smartphone maker. “This action puts America first, American companies first, and American national security first,” a senior Commerce Department official advised reporters in a phone briefing on Friday. Huawei, the world’s high telecoms tools maker, didn’t reply to a request for remark. News of the transfer in opposition to the agency hit European shares as merchants offered into the day’s features, whereas shares of chip tools makers akin to Lam Research and KLA Corp closed down 6.4% and 4.8%, respectively, in U.S. buying and selling. The response from China was swift, with a report on Friday by China’s Global Times saying Beijing was able to put U.S. firms on an “unreliable entity list,” as a part of countermeasures in response to the brand new limits on Huawei. The measures embrace launching investigations and imposing restrictions on U.S. firms akin to Apple Inc, Cisco Systems Inc and Qualcomm Inc, in addition to suspending purchases of Boeing Co airplanes, the report mentioned right here citing a supply. The Commerce Department’s rule, efficient Friday however with a 120-day grace interval, additionally hits Taiwan Semiconductor Manufacturing Co Ltd, the most important contract chipmaker and key Huawei provider, which introduced plans to construct a U.S.-based plant on Thursday. TSMC mentioned on Friday it’s “following the U.S. export rule change closely” and dealing with exterior counsel to “conduct legal analysis and ensure a comprehensive examination and interpretation of these rules.” The division mentioned the rule is aimed toward stopping Huawei from persevering with to “undermine” its standing as a blacklisted firm, which means suppliers of U.S.-made subtle expertise should search a U.S. authorities license earlier than promoting to it. “There has been a very highly technical loophole through which Huawei has been in able, in effect, to use U.S. technology with foreign fab producers,” Commerce Secretary Wilbur Ross advised Fox Business Network on Friday, calling the rule change a “highly tailored thing to try to correct that loophole.” The firm was added to the Commerce Department’s “entity list” final yr because of nationwide safety issues, amid accusations from Washington that it violated U.S. sanctions on Iran and may spy on clients. Huawei has denied the allegations. Frustration amongst China hawks within the administration that Huawei’s entity itemizing was not doing sufficient to curb its entry to provides prompted an effort, first reported by Reuters in November, to crack down on the corporate that culminated in Friday’s rule. Washington lawyer Kevin Wolf, a former Commerce Department official, mentioned the rule seemed to be a “novel, complex expansion of U.S. export controls” for chip-related objects made with U.S. expertise overseas and despatched to Huawei. But he burdened that chips designed by firms aside from Huawei and manufactured with U.S. expertise may nonetheless be offered to the corporate with out the license requirement. While the brand new guidelines will apply to chips no matter their degree of sophistication, a senior U.S. State Department official who additionally briefed reporters Friday opened the door to some flexibility for the corporate, echoing reprieves granted to Huawei by the Trump administration beforehand. “This is a licensing requirement. It does not necessarily mean that things are denied,” the official mentioned, including that the rule offers the U.S. authorities higher “visibility” into the shipments. “What are done with those applications, we’ll have to see … Each application will be judged on its merits.” After basically barring Huawei from shopping for from U.S. suppliers, the Commerce Department granted licenses to a few of Huawei’s largest U.S. companions to proceed to promote to the corporate, whereas additionally permitting smaller rural telecoms firms to proceed to buy Huawei tools to maintain their networks up and working. Huawei, which wants semiconductors for its smartphones and telecoms tools, has discovered itself on the coronary heart of a battle for international technological dominance between the United States and China, whose relationship has soured in latest months over the origins of the lethal coronavirus. While the rule change is aimed toward squeezing Huawei and can hit the chip foundries it depends on, U.S. producers of chipmaking tools may face long-term ache, if chipmakers develop new tools sources past the attain of U.S. guidelines. But for now, most chipmakers depend on tools produced by U.S. firms akin to KLA, Lam Research and Applied Materials, which didn’t reply to requests for remark. While among the complicated instruments required to make chips come from firms exterior the United States, akin to Japan’s Tokyo Electron and Hitachi and the Netherlands’ ASML, analysts say it might be troublesome to place collectively a complete toolchain for making superior semiconductors with out no less than some American tools. The burden of coping with the brand new rule is most certainly to be felt by foundries akin to TSMC that purchase the instruments, relatively than U.S. semiconductor companies akin to Qualcomm Inc or Nvidia Corp that faucet such foundries as a part of their provide chain. FILE PHOTO: The Huawei brand is seen on a communications gadget in London, Britain, January 28, 2020. REUTERS/Toby Melville“We are concerned this rule may create uncertainty and disruption for the global semiconductor supply chain, but it seems to be less damaging to the U.S. semiconductor industry than the very broad approaches previously considered,” Semiconductor Industry Association Chief Executive John Neuffer mentioned in a press release. U.S. Secretary of State Mike Pompeo mentioned the motion was aimed toward defending “the integrity of 5G networks.” He added that the rule “helps prevent Huawei from undermining U.S. export controls.” Reporting by David Shepardson, Karen Freifeld and Alexandra Alper; extra reporting by Stephen Nellis, Ben Blanchard and David Kirton Editing by Lincoln Feast, Steve Orlofsky and Daniel WallisOur Standards:The Thomson Reuters Trust Principles.