China's Ministry of Commerce has denounced new US restrictions targeting Huawei's artificial intelligence (AI) chips, arguing the move threatens the recently established trade consensus between the two nations in Geneva. The Ministry urged Washington to "immediately correct its wrongful actions" and cease what it called discriminatory measures against Chinese companies.
The US Bureau of Industry and Security (BIS) recently issued guidance stating that Huawei's Ascend series AI chips—if used "anywhere in the world"—would violate US export rules due to embedded US-origin technologies. Although BIS later softened the language to describe the usage as a "risk" rather than a blanket prohibition, the revision failed to ease Beijing's concerns.
According to Reuters and Bloomberg, China's Ministry of Commerce accused the US of weaponizing export controls to stifle Chinese semiconductor products, stating the restrictions not only damage China's interests but also weaken US industrial competitiveness. "Tripping others won't make you run faster," the ministry added.
China urged the US to uphold the phase-one agreement reached in Geneva, including the 90-day tariff reprieve and stressed the importance of dialogue to maintain stability. Beijing warned that further US escalation would prompt "necessary countermeasures."
US restrictions on Huawei chips jeopardize Geneva truce
The dispute emerged just days after the US and China struck a surprise Geneva accord to lower tariffs from peaks of 125% to a baseline of 10%. According to the BBC, however, the effective US tariff rate on Chinese imports still hovers around 40%, with semiconductor-specific duties holding steady at 70%.
Semiconductors remain central to US-China trade tensions. Despite the Geneva truce, the US continues to restrict high-end chip exports to China and maintains steep tariffs on Chinese-made semiconductors.
Washington justified the additional 20% tariff hike introduced in early 2025 by citing national security concerns and the ongoing fentanyl crisis, bringing total semiconductor tariffs to 70%.
The impact is bilateral. US firms, including AMD, Intel, Micron, and Samsung Electronics—many of which depend on China-based assembly—now face higher operating costs due to the tariffs.
A Shenzhen-based chip trader told the BBC that cross-border chip demand is weakening, as customers grow cautious about placing large orders under continued geopolitical uncertainty.
Separately, the US Commerce Department warned that using Huawei's Ascend AI chips—even outside China—could trigger export violations.
BIS clarified that firms utilizing chips made or controlled by entities based in any of 24 embargoed jurisdictions, including China, could face penalties including multimillion-dollar fines and prison sentences of up to 20 years.
Rising risks to trade pact and global market reactions
According to FX168, China's outcry over Huawei chip restrictions threatens to unravel the fragile Geneva truce, just as investor optimism had begun lifting Asian markets on hopes of trade de-escalation.
On May 20, 2025, the MSCI Asia Pacific Index climbed 0.4%—its first gain in four sessions. Hong Kong's Hang Seng Index rose 1.2%, while CATL shares surged 13% on their trading debut.
Market sentiment was lifted by expectations that a trade thaw would boost AI-driven sectors such as semiconductors and cloud infrastructure.
Allspring Global Investments' portfolio manager, Gary Tan, noted, "Asian equities have rebounded recently, driven by easing trade tensions and AI sector momentum. Sentiment stays positive—unless fresh tariff surprises emerge."
Analysts caution that the renewed chip dispute could derail broader trade talks. China's accusation that the US violated the Geneva deal reintroduces uncertainty at a time when Washington and New Delhi are negotiating a phased trade pact.
Tim Waterer, chief market analyst at KCM Trade, said, "Asia's markets are catching up today. We're seeing a rebound after absorbing Moody's downgrade—but fresh geopolitical tensions could easily wipe out those gains."
FX168 emphasized that investor optimism remains fragile. If the US reinstates harsher trade measures or delays clarifying chip export rules, confidence could quickly deteriorate.
Outlook: Tensions threaten fragile consensus
Both Beijing and Washington face mounting pressure to safeguard the Geneva truce. China's latest warning signals that future cooperation hinges on the US pulling back from further technology-related confrontations.
Article edited by Jerry Chen
