U.S. Commerce Department Puts SMIC on the Entities List

• American chip and tech experts will now have to get a special license to do business with SMIC.
• The U.S. Department of Commerce believes that SMIC has ties with the Chinese military.
• The impact of the ban will depend on how strict or lax the licensing process will be.

American tech companies who have been doing business with the SMIC (Semiconductor Manufacturing International Corporation) will now need to obtain an export license from the U.S. Commerce Department. The agency has reached this decision fearing that the Shanghai-based chipmaker is a liability for national security, and so it shouldn’t be enabled to manufacture semiconductors by using advanced American technology and tools. Intel, Qualcomm, Broadcom, and Texas Instruments are directly or indirectly affected by this, and so is Huawei, a minority shareholder of SMIC.

The Chinese semiconductor company is the largest of its kind in China. It is partially state-owned and is a key player in both the local and the international market. SMIC is not a direct competitor of other chipmakers as they are technologically behind, having reached to fabrication sizes of 14 nm. Still, they are growing quickly, and last May, they entered the country’s “Made in China 2025” investment program, receiving a $2 billion funding.

The Trump administration probably doesn’t like what they see SMIC developing into, so they have decided to tighten the export rules against them, preventing U.S. companies from doing business with the Chinese. The official reasoning was given as follows:

To these allegations, SMIC responded by saying that the company has no relationship with the Chinese military and does not manufacture products for military uses or users. This is unlikely to convince the U.S. Commerce Department to retract its decision, as there’s an entire “trade war” going on between China and the United States, and the entire spectrum of reasons why the umbilical cord with SMIC must be cut is complex and extensive.

Related: Trump Wants to Ban TikTok Unless an American Company Buys 100% of It

The Commerce Department could maintain a relaxed exporting license system, or they could reject most requests. Depending on how strict the reviewing will be, SMIC may witness a real disruption, resulting in a freeze of its technological development. With all that has been going on between the two countries, SMIC’s share has lost approximately 57.5% of its value since July 2020. Following today’s news, the share price fell by another 3.88%.