TRUMP administration efforts to secure high-tech jobs while piling pressure on China sparked hope then despair last week across the U.S. chip industry, one of the country’s biggest export engines.

Late Thursday, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, said it will build a US$12 billion plant in Arizona. The deal suggested U.S. companies might be able to supply TSMC free from export restrictions.

That optimism only lasted a few hours. By Friday morning, the U.S. Commerce Department unveiled new rules that require any chipmaker using U.S. technology to get a license before they can sell to Huawei Technologies Co.

“This rule may create uncertainty and disruption for the global semiconductor supply chain,” Semiconductor Industry Association chief executive officer John Neuffer said.

The biggest concern now is how China will retaliate. During previous rounds of action against Huawei, China cautioned U.S. companies it was building a list of “unreliable entities” that interfere with Chinese businesses. Such threats are a major concern for the industry because China is the biggest semiconductor market.

“The risk of escalation and retaliation remains the broader structural worry,” Sanford C. Bernstein chip analyst Stacy Rasgon said. “There has been some ominous news flow around China activating their ‘unreliable’ list in response, and we don’t know what the next U.S. move might be.”

On Friday, Beijing-based Global Times reported that China was ready to initiate a series of countermeasures, without elaborating.

The Philadelphia Stock Exchange Semiconductor Index rallied 2.8 percent Thursday as news of the TSMC chip plant circulated. After the U.S. Commerce Department rules came out Friday, the industry benchmark fell 2.2 percent.

Chip equipment makers Applied Materials Inc., Lam Research Corp. and KLA Corp. were among the biggest losers. The new license requirements focus on machinery from these companies, along with chip design software sold by Cadence Design Systems Inc. and Synopsis Inc.

The ultimate target is Huawei, though. The United States had already imposed restrictions on U.S. tech companies selling to the Chinese company. But the chip industry shrugged off some of the limitations, or worked around them by using overseas production facilities to make parts for Huawei with less than 25 percent U.S. content. Huawei also bought from non-U.S. companies that make products based on U.S. technology.

TSMC was part of this strategy because it does most of its manufacturing in Taiwan and continued to churn out semiconductors designed by Huawei’s HiSilicon division, helping the Shenzhen-based company weather the worst of the U.S. blockade.

The latest license requirements close these loopholes and give the Trump administration another tool to pressure Huawei, along with more leverage in broader trade negotiations with China.

It could backfire on the U.S. chip industry, though. Limiting TSMC’s access to U.S. machinery and software would slow the development of new semiconductor production techniques. That will have massive, direct consequences for some of the largest U.S. companies.

Apple Inc.’s iPhone chips are made by TSMC. Qualcomm Inc., which designs chips and modems that power most handsets running Google’s Android software, also relies on the Taiwanese manufacturer. Advanced Micro Devices Inc. and Nvidia Corp. are customers, too. A weaker TSMC will mean less-capable devices from these companies in a few years.

The deal for a new TSMC factory in Arizona won’t help much because the facility will make semiconductors based on existing technology, not the next cutting-edge generation. (SD-Agencies)