Trump Just Took the Nuclear Option on Huawei

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(Bloomberg Opinion) -- A new U.S. edict limiting Huawei Technologies Co.'s access to technology is more than just an incremental measure against the Chinese telecommunications giant. It threatens to kill the company, which invites retaliation from Beijing.

In May, the administration of President Donald Trump mandated that manufacturers globally couldn’t use American technology to produce chips designed by Huawei.

At first, that also threatened chief supplier Taiwan Semiconductor Manufacturing Co., until it became clear that a legal workaround was available: Let Huawei buy chips that it didn’t design. As a result, Taiwan’s MediaTek Inc. stepped into the breach and quickly became the biggest purveyor of key 5G smartphone components, which are made by TSMC.

It looked like a kind of win-win for everyone. Washington could curb Huawei’s semiconductor development, and by extension Beijing’s ambitions; Taiwan, a key U.S. ally, got a revenue boost; and Huawei itself would still survive even if its technology was hobbled.

But that wan’t enough for the Trump administration.

On Monday the Commerce Department expanded its foreign-produced direct product rule to include situations “where U.S. software or technology is the basis for a foreign-produced item” that will be used by Huawei, or where the company is party to such a transaction, such as being an intermediary supplier.

This is Trump launching a nuclear warhead aimed directly at Huawei.

Secretary of State Mike Pompeo basically acknowledges as much.

There are dozens of steps in developing, manufacturing and installing chips in a device, with U.S. technology an integral part throughout. Synopsys Inc. and Cadence Design Systems Inc. make software used to design semiconductors; Lam Research Corp. and Applied Materials Inc. are major suppliers of manufacturing equipment — all four companies are based in Silicon Valley.

There are many more American technology providers crucial to the process. Remove just one, and any chip company will struggle to keep up. Removing them all would be akin to cutting off the oxygen. And if the new rule is to be strictly interpreted, then even the use of generalist technologies like PCs running on Microsoft Corp.’s Windows and Intel Corp. processors could be prohibited.

Huawei might, just might, be able to cobble together a patchwork of suppliers that not only are non-American but don’t even use U.S. technology. But this backup solution would be far inferior to that available to global peers, and any effort would be full of landmines — even if Huawei doesn’t care about upsetting the U.S. (that horse has bolted), every single non-American company it deals with, even Chinese, will be rightfully paranoid about putting a foot wrong.