Chinese chip giant SMIC and global drone leader DJI added to U.S. trade blacklist

More escalations between the two countries in terms of tariffs are expected
The Trump Administration increased pressure on China, adding dozens of Chinese companies to its trade blacklist on Friday. U.S. sales are restricted to the Chinese companies, including chipmaker SMIC and dronemaker DJI. (istock)(Zebor/istock photo)

 

The U.S. Department of Commerce on Friday added China’s biggest chipmaker, SMIC, and dozens of other Chinese companies to the same trade blacklist that already includes Huawei.

Officials described the primary reason for adding SMIC to the U.S. Entity List as one of protecting U.S. national security.  DJI, the world’s largest drone manufacturer, was among the other Chinese companies added to the list, reportedly for alleged human rights violations.

The move comes just 33 days before President-elect Joe Biden assumes office on Jan. 20.  President Trump has been consistently tough on China, especially in trade policy ranging from technology to agriculture products.

“We will not allow advanced U.S. technology to help build the military of an increasingly belligerent adversary,” said Commerce Secretary Wilbur Ross in a statement.

“Entity List restrictions are a necessary measure to ensure that China, through its national champion SMIC, is not able to leverage U.S. technologies to enable indigenous advanced technology levels to support its destabilizing military activities,” Ross added.

The designation on the Entity List means SMIC is limited in acquiring certain U.S. technology, requiring U.S. exporters to apply for a license to sell to the company.  Commerce said manufacturing equipment to produce chips at advanced technology nodes of 10 nm or less will be subject to a “presumption of denial to prevent such key enabling technology from supporting China’s military-civil fusion efforts.”

A number of U.S.-based semiconductor and components companies that sell to Huawei have used the permitting process to win the ability to make some continued sales to Huawei in the past year.  Broadly, U.S. semiconductor companies have objected to limits placed on their ability to sell to Chinese companies, but they have not discussed their displeasure publicly partly because they support Trump for attacking Chinese companies for theft of their intellectual property and restrictions on opening businesses in China. The Semiconductor Industry Association said Friday it didn’t plan to comment on the latest listing of SMIC and others.

In a Fox Business interview on Friday, Ross said the U.S. was adding a total of 77 companies and affilitates to the entity list, including 60 Chinese companies.   By comparison, the official Commerce press release said that more than 60 entities were added for “actions deemed contrary to the national security or foreign policy interest” of the U.S., including entities in China that “enable human rights abuses” or “supported the militarization and unlawful maritime claims in the South China Sea” or support PLA programs or entities and persons “engaged in theft of U.S. trade secrets.”

The entire list of the latest additions totals 77 entities, of which 60 are from China. Of those 60, eight are SMIC-affiated. DJI was added to the list because the U.S. believes DJI has played a role in human rights violations in China, according to a briefing reported by DroneDJ.

China’s reaction to the Entity List additions was immediate. “We urge the U.S. to cease its mistaken behavior of unwarranted oppression of foreign companies,” China foreign ministry spokesman Wang Wenbin said at a regular news conference held in Beijing on Friday. “China will continue to take necessary measures to safeguard the legitimate rights and interests of Chinese companies."

The U.S. is politicizing trade issues which is “detrimental to the interests of both Chinese and American companies…and the stability of global industrial chains, supply chains and value chains,” he added.

SMIC did not respond to a request to comment on the Entity List designation, but has often said it complies with laws in countries where it does business, including the U.S., and makes products and services for civilian end-uses and they are not involved in any military action.  For those reasons, on December 4, SMIC issued a statement saying it strongly opposed a U.S. Department of Defense designation that restricted U.S. citizens from purchasing SMIC securities.

DJI issued a statement late Friday saying it is "disappointed" by the Entity listing.  The company noted that customers in the U.S. can continue to buy and use DJI drones in a normal way. "DJI remains committed to developing the industry's most innovative products that define our company and benefit the world," the statement said. *

It isn’t clear how the incoming Biden Administration will deal with specific companies on the Entity List, although some analysts predict he won’t immediately change course on trade policy with China.

Leonard Lee, an analyst at neXt Curve, said Trump policies are "bringing about unintended consequences that could subvert the U.S. government's attempts to control China's access to advanced technologies." He mentioned Taiwan's recent move to incubate a local semiconductor equipment industry independent of U.S, trade policies.

"China has also redoubled their efforts to become semiconductor self-reliant," Lee added. For example, SMIC announced last month that its new FinFET N+1 process node is equivalent to TSMC's 7nm process. 

* This updated story includes comment by DJI. 

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