Tougher Huawei Restrictions Stall After Defense Department Objects

WASHINGTON — The Trump administration has put on hold a proposed rule change that would further restrict American sales to Huawei, the Chinese telecom giant, after some officials in the Department of Defense and other agencies argued that the measure, which was intended to protect national security, could backfire and actually harm it, according to people familiar with the matter.

The rule change, which is currently being reviewed, would close a loophole that allowed technology companies like Intel and Micron to continue shipping some products to Huawei, even after the Chinese firm was placed on a blacklist that prevented it from buying some American products last May.

But some officials have objected to the change, arguing that it would encourage foreign companies to stop using American components, ultimately weakening American firms and the country’s technological competitiveness.

The measure is the latest in a series of steps the Trump administration has taken to combat what it describes as a pressing security threat: China’s acquisition of advanced technologies that could give the country both a commercial and a military edge. Many of those efforts have focused on Huawei, which sells global telecom equipment that American officials fear will give Beijing new channels for control and surveillance. Huawei says its networks are secure and these concerns are unfounded.

Tensions between the United States and China have eased since the countries concluded a Phase One trade deal. But the fate of Huawei, and the American companies that supply it, continues to hang in the balance. Last May, the Trump administration moved to cut off shipments of certain goods, software and technology to Huawei, unless companies apply for and obtained a special license.

The proposed measures have not been made public, and their exact scope is unclear. But they have sparked a backlash among critics, including American tech companies, who say these and others changes could simply encourage foreign manufacturers to stop using American-made components.

The rule change is deeply unpopular with many in industry, particularly the companies most directly affected and parts of the defense industry, said current and former officials.

Within government the battle lines are blurred. Some defense officials have concerns about how the rule change will impact key military suppliers. Other senior defense officials believe the national security case for cutting Huawei off from key American components is clear and overrides other concerns, said current and former officials.

A Pentagon spokeswoman, Sue Gough, said the department was aware of Commerce’s proposed rule change, but “will not prematurely discuss ongoing interagency collaboration.”

In a Dec. 5 letter to Commerce Secretary Wilbur Ross, viewed by The New York Times, a collection of industry groups, including the Semiconductor Industry Association and the National Association of Manufacturers, wrote that the changes could reduce innovation and competitiveness in the American industry, cause customers abroad to stop purchasing American technology, and accelerate the offshoring of manufacturing and research.

“While we fully understand the paramount importance of maintaining our national security, we believe these actions would have serious negative consequences for U.S. economic leadership and, ultimately, U.S. national security,” the letter said.

Julian E. Barnes contributed reporting from Washington. Raymond Zhong contributed reporting from Beijing.

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