In a radical move on Wednesday, President Donald Trump delivered an executive order banning U.S. businesses from using information and communications technology from anyone deemed to be a national security threat and declared a national emergency on the matter. Many believe the decision was targeting Chinese telecom behemoth Huawei.

On that same day, the Commerce Department put Huawei and 70 of its related enterprises on its “Entity List,” which is essentially a trade blacklist that prevents those on it from purchasing parts and components from United States companies without prior governmental approval.

The news is driving telecom stocks lower, and has had a notable effect on ETFs in the semiconductor space, such as the VanEck Vectors Semiconductor ETF (SMH), which is down 3.29%.

According to CNBC’s Dom Chu, “Computer chips are among some of the hardest hit ones in today’s trading. Much of that having to do with the decision by the Trump administration to limit the amount of business U.S. companies can do with Chinese telecom giant Huawei. Now Alphabet’s Google unit is really kind of the big issue with regard to business activities. It’s suspending a lot them with Huawei to comply with that order. The chip stocks [are]now a factor into that story after a Bloomberg report saying that the computer chip makers that are a part of Huaweii’s supply chain, including Qualcomm, Broadcom, Intel, Xilinx, all those, they’re also suspending sales to Huawei until further notice. Now those stocks are among some of the larger cap chip stocks that a taking a bigger hit in today’s trading. If you take a look at some of those, this is having a huge impact, a ripple effect, across the entire ETF space, with every member of the VanEck Vectors Semiconductor Fund (SMH), down on the day; every one of them: 25 of those stocks. The moves today now means that chip stocks of that ETF has fallen by about 15% just since April 24th.”

The White House’s decision is the result of the ongoing trade war with China, but also may be due to developing concerns that Huawei is potentially spying, as well as other national security threats.

“We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks that provides the capacity to exert pressure or control over our telecommunications infrastructure,” FBI Director Christopher Wray said in his testimony. “It provides the capacity to maliciously modify or steal information, and it provides the capacity to conduct undetected espionage.”

“According to analysts at EverCore ISI, Huawei buys up an estimated 20 billion dollars worth of semiconductors each year. So this is gonna be a key industry group to watch, and pay attention to any Huawei headlines. [It’s a] big move, 15% just since April 24th, and is a reason why a lot of folks are watching that semiconductor space,” Chu added.

For more investing news, visit ETFtrends.com.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.