(Reuters) — Senior officers within the Trump administration agreed to new measures to limit the worldwide provide of chips to China’s Huawei, sources aware of the matter mentioned, because the White House ramps up criticism of China over coronavirus.

The transfer comes as ties between Washington and Beijing develop extra strained, with each side buying and selling barbs over who’s in charge for the unfold of the illness and an escalating tit-for-tat over the expulsion of journalists from each nations.

Under the proposed rule change, international firms that use U.S. chipmaking tools can be required to acquire a U.S. license earlier than supplying sure chips to Huawei. The Chinese telecoms firm was blacklisted final 12 months, limiting the corporate’s suppliers.

One of the sources mentioned the rule-change is geared toward curbing gross sales of chips to Huawei by Taiwan Semiconductor Manufacturing Co, a significant producer of chips for Huawei’s HiSilicon unit, in addition to the world’s largest contract maker.

It is unclear if President Donald Trump, who appeared to push again towards the proposal final month, will log off on the rule change. But if finalized, it might deal a blow to Huawei and TSMC, hurting U.S. firms as effectively, sources mentioned.

U.S. plans crackdown on Huawei’s global chip supply

“This is going to have a far more negative impact on U.S. companies than it will on Huawei, because Huawei will develop their own supply chain,” commerce lawyer Doug Jacobson mentioned. “Ultimately, Huawei will find alternatives.”

An individual aware of the matter mentioned the U.S. authorities has gone to nice lengths to make sure impacts on U.S. business will likely be minimal.

The transfer might anger Beijing, which has spoken out towards a world marketing campaign by the United States to compel allies to exclude Huawei from their 5G networks over spying issues. Huawei has denied the allegations.

Most chip producers depend on tools produced by U.S. firms reminiscent of KLA Corp, Lam Research and Applied Materials, in keeping with a report final 12 months from China’s Everbright Securities.

The tools makers didn’t instantly reply to requests for remark.

The determination got here when U.S. officers from varied businesses met and agreed on Wednesday to change the Foreign Direct Product Rule, which topics some foreign-made items based mostly on U.S. know-how or software program to U.S. rules, the sources mentioned.

Attendees probably included high officers from the National Security Council and the U.S. Departments of State, Defense, Energy and Commerce. None of them responded to requests for remark.

Huawei declined to remark. TSMC mentioned it “is unable to answer hypothetical questions and does not comment on any individual customer.”

One of the sources mentioned the rule-change is geared toward proscribing the sale of subtle chips to Huawei and never older, extra commoditized and broadly out there semiconductors.

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

“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,” he mentioned.

U.S.-China tensions

The United States positioned Huawei on a blacklist in May final 12 months, citing nationwide safety issues. The entity itemizing, as it’s identified, allowed the U.S. authorities to limit gross sales of U.S.-made items to the corporate and a few extra restricted objects made overseas that include U.S. know-how.

But underneath present rules, key international provide chains stay past the attain of U.S. authorities, fueling frustration amongst China hawks within the administration and prompting a push to toughen up export guidelines for the corporate, Reuters reported in November.

The hawks’ efforts appeared in jeopardy final month when Trump reacted strongly towards the proposed crackdown, after Reuters and the Wall Street Journal reported {that a} transfer to dam international chip gross sales to Huawei was into consideration.

“I want our companies to be allowed to do business. I mean, things are put on my desk that have nothing to do with national security, including with chipmakers and various others. So we’re going to give it up, and what will happen? They’ll make those chips in a different country or they’ll make them in China or someplace else,” Trump mentioned.

(Additional reporting by Mike Stone in Washington, Editing by Chris Sanders, Nick Zieminski and Dan Grebler)