By David Lawder
WASHINGTON (Reuters) - President Donald Trump's administration took action on Monday to cut off a Chinese state-backed chipmaker from U.S. suppliers amid allegations the firm stole intellectual property from U.S. semiconductor company Micron Technology Inc (NASDAQ:MU).
The Commerce Department said it had put Fujian Jinhua Integrated Circuit Co Ltd on a list of entities that cannot purchase components, software and technology goods from U.S. firms.
The administration is concerned the Chinese firm could flood the market with cheap chips that are also made by U.S. companies that supply the U.S. military. If the U.S. chipmakers go out of business, the military would lose a supplier for an item that must come from the United States.
Trade experts said the Trump administration's move may be an unprecedented effort to use a legal tool known for punishing foreign companies that send U.S.-origin goods to sanctioned countries such as Iran to instead protect the economic viability of a U.S. firm.
The move escalated what until now had been a business dispute into the realm of an international trade conflict between the United States and China. The Commerce Department spokesman said the move was "based on the regulatory standard."
The action against Fujian Jinhua is likely to ignite new tensions between Beijing and Washington since the company is at the heart of the "Made in China 2025" program to develop new high-technology industries.
The world's top two economies are already waging a tariff war over their trade disputes, with U.S. duties in place on $250 billion worth of Chinese goods and Chinese duties on $110 billion of U.S. goods.
Fujian Jinhua makes so-called DRAM, the memory chips that make computers, phones and other devices run more quickly and smoothly.
Micron, a maker of memory chips with factories in Virginia and Utah, has accused Fujian Jinhua and Taiwanese partner United Microelectronics Corp of stealing its chip designs in a lawsuit in California. In turn, the companies countersued Micron in China, where courts sided with them and banned some of Micron's chips in China.
"When a foreign company engages in activity contrary to our national security interests, we will take strong action to protect our national security," Commerce Secretary Wilbur Ross said in a statement.
A Commerce Department spokesman said the agency would review any appeal by Fujian Jinhua.
Speaking in Beijing, Chinese Foreign Ministry spokesman Lu Kang referred specific questions on the case to the Commerce Ministry, which has yet to comment.
But, in principle, the Chinese government has always asked Chinese companies to strictly follow local laws when they operate overseas, and asks foreign governments to provide fair treatment to Chinese firms, Lu added.
'ENTITY LIST'
The action is similar to a Commerce Department move that nearly put Chinese telecommunications equipment company ZTE Corp (HK:0763) out of business earlier this year by cutting it off from U.S. suppliers.
Linley Gwennap, a chip expert and president of the Linley Group, said Fujian Jinhua was a relatively new company building DRAM as part of China's larger plan to become self-sufficient at making such chips.
He said suppliers such as Applied Materials Inc (NASDAQ:AMAT), Lam Research Corp (NASDAQ:LRCX) and KLA-Tencor Corp (NASDAQ:KLAC) were likely supplying equipment to Fujian Jinhua.
"It's pretty much impossible to build a leading-edge fab (semiconductor plant) without buying equipment from these American companies," Gwennap said.
On an earnings call on Monday, KLA-Tencor Chief Executive Rick Wallace said the company expected no financial impact in 2018 or 2019 from the move.
Neither of the other companies that Gwennap named immediately returned a request for comment.
The use of the "entity list" - which governs what companies U.S. firms can do business with - to protect the economic viability of a U.S. industry appears to be unprecedented, said Washington trade lawyer Douglas Jacobson.
“This appears to be a dramatic expansion of the use of the entity list for economic purposes,” he said, explaining that the entity list had traditionally been used to prevent imminent violations of U.S. export control laws.