Semiconductor sector-specific exchange traded funds took another blow from rising trade tensions between the United States and China as the Trump administration moves to block global chip supplies to Chinese telecom giant Huawei Technologies.
On Friday, the iShares PHLX Semiconductor ETF (NasdaqGS: SOXX) declined 2.1% and the VanEck Vectors Semiconductor ETF (SMH) decreased 2.3%.
The Commerce Department enacted a new rule that expands U.S. authority to require licenses for sales of semiconductors made abroad with U.S. technology to Huawei, Reuters reports.
“This action puts America first, American companies first, and American national security first,” senior Commerce Department official told reporters in a telephone briefing.
In retaliation, China will put U.S. companies on an “unreliable entity list,” according to China’s Global Times This would include investigations and restrictions on U.S. companies such as Apple Inc, Cisco Systems Inc and Qualcomm Inc, along with suspending purchase of Boeing Co airplanes.
The Commerce Department argued that the new rule would prevent Huawei from continuing to “undermine” its status as a blacklisted company, or close a workaround that the Chinese company has taken advantage of. Suppliers of U.S.-made sophisticated technology would now require a U.S. government license before selling 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 told Fox Business News, calling the rule change a “highly tailored thing to try to correct that loophole.”
Huawei was previously a target during the U.S.-China trade war last year and was added to an “entity list” due to national security concerns. Washington argued that the telecom company violated U.S. sanctions on Iran and would use its technology to spy on customers.
The rule’s implementation will be delayed for 120 days to provide companies a chance to get the government to amend the regulation, according to the Commerce Department.
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