The US limits its exports to the Chinese semiconductor company Fujian Jinhua

WASHINGTON (Reuters) – The administration of US President Donald Trump took steps on Monday to cut off a Chinese state-sponsored chip maker from US suppliers, as the company is owned by US semiconductor company Micron Technology Inc (MU.O).

FILE PHOTO: Memory chip parts from the US memory chip manufacturer Micron Technology are shown on their stand at an industrial fair in Frankfurt on July 14, 2015. REUTERS / Kai Pfaffenbach / File Photo

The Department of Commerce said it had placed Fujian Jinhua Integrated Circuit Co Ltd on a list of companies that could not buy components, software and technology assets from US companies.

The government is worried that the Chinese company may flood the market with cheap chips, also made by US companies supplying the US military. If the US chip makers get out of business, the military would lose a supplier for an article that must come from the United States.

Trade experts said the Trump administration's move could be an unprecedented attempt to use a legal tool known to punish foreign companies sending goods from the US to sanctioned countries such as Iran for the economic viability of a US Company to protect.

The move escalated what had previously been a commercial dispute into the area of ​​an international trade dispute between the United States and China. Ministry of Commerce spokesman said the move is "based on the regulatory standard".

The move against Fujian Jinhua is likely to spark new tensions between Beijing and Washington as the company is at the center of the Made in China 2025 program to develop new high-tech industries.

The two largest economies in the world are already waging a wage war over their trade disputes, with US tariffs on Chinese goods worth $ 250 billion and Chinese tariffs on goods worth $ 110 billion.

Fujian Jinhua manufactures so-called DRAMs, the memory chips that make computers, phones, and other devices run faster and smoother.

Micron, a manufacturer of memory chips with factories in Virginia and Utah, has accused Fujian Jinhua and its Taiwanese partner United Microelectronics Corp. (2303.TW) to steal his chip designs in a lawsuit in California. In return, the companies fought Micron in China, where the courts allied with them and banned some Micron chips in China.

"If a foreign company conducts activities that contradict our national security interests, we will act with determination to protect our national security," Trade Minister Wilbur Ross said in a statement.

A Ministry of Commerce spokesman said the agency would review any appeal made by Fujian Jinhua.

China's Commerce Ministry said in a statement on Tuesday that it is against the US to interfere in the normal international trade of companies and misuse export control measures.

"China urges the US side to take action and immediately stop its wrong ways," the ministry added.

Chinese Foreign Ministry spokesman Lu Kang said earlier that the Chinese government has always urged Chinese companies to strictly comply with local laws when operating overseas, and urges foreign governments to treat Chinese companies fairly.

& # 39; ENTITY LIST & # 39;

The action in the US is similar to a trading department that almost the Chinese telecommunications equipment company ZTE Corp. (000063.SZ) was phased out earlier this year by being cut off from US suppliers.

Linley Gwennap, a chip expert and President of the Linley Group, said that Fujian Jinhua is a relatively new company that built DRAM as part of China's larger plan to make itself self-sufficient chips.

He told suppliers like Applied Materials Inc (AMAT.O), Lam Research Corp. (LRCX.O) and KLA-Tencor Corp. (KLAC.O) were likely to supply Fujian Jinhua equipment.

"It's pretty much impossible to build a state-of-the-art fab (semiconductor factory) without buying equipment from these American companies," said Gwennap.

In a Monday's earnings announcement, KLA-Tencor CEO Rick Wallace said the company would not expect a financial impact from 2018 or 2019.

None of the other companies named Gwennap immediately returned a request for comment.

The use of the Entity List, which regulates which companies US companies can do business to protect the economic viability of a US industry, seems to be unprecedented, said Washington's attorney Douglas Jacobson.

"This appears to be a dramatic expansion in the use of the entity list for commercial purposes," he said, explaining that the list of entities had traditionally been used to prevent impending violations of US export control laws.

Reporting by David Lawder; Other reports by Diane Bartz in Washington, Karen Freifeld in New York, Stephen Nellis in San Francisco and Ben Blanchard in Beijing; Cut by Jeffrey Benkoe, Peter Cooney and Nick Macfie

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