How U.S. Firms Battled a Government Crackdown to Keep Tech Sales to China

At a meeting in Washington this spring, tech company representatives and government officials once again found themselves at odds over where to draw the line when it came to selling coveted technology to China.

The Biden administration was considering cutting off the sales of equipment used to manufacture semiconductors to three Chinese companies that the government had linked to Huawei, a technology giant that is sanctioned by the United States and is central to China’s efforts to develop advanced chips.

Applied Materials, KLA Corporation and Lam Research, which make semiconductor equipment, argued that the three Chinese companies were a major source of revenue. The U.S. firms said that they had already earned $6 billion by selling equipment to those Chinese companies, and that they planned to sell billions more, two government officials said.

U.S. officials, who view the flow of U.S. technology to Huawei as a national security threat, were stunned by the argument. In regulations issued this month, they ultimately rejected the American companies’ plea.

Over the past year, an intense struggle has played out in Washington between companies that sell machinery to make semiconductors and Biden officials who are bent on slowing China’s technological progress. Officials argue that China’s ability to make chips that create artificial intelligence, guide autonomous drones and launch cyberattacks is a national security threat, and they have clamped down on U.S. technology exports, including in new rules last week.

But many in the semiconductor industry have fought to limit the rules and preserve a critical source of revenue, more than a dozen current and former U.S. officials said. Most requested anonymity to discuss sensitive internal government interactions or exchanges with the industry.