The changes, which the department announced in a written statement on Monday, build on restrictions announced in May, adding 38 Huawei affiliates in 21 countries to an economic blacklist as the U.S. seeks to limit adoption of the company’s 5G technology.

“We don’t want their equipment in the United States because they spy on us,” President Donald Trump said Monday in an interview on “Fox and Friends.”

The move is the latest tit-for-tat in escalating tensions between Washington and Beijing over everything from the origins of the Covid-19 pandemic to China’s increasingly tight grip over Hong Kong. Despite the U.S. decision, Commerce Secretary Wilbur Ross said on Fox Business that talks with China continue on various levels.

The restrictions are likely to further hit both Huawei’s 5G base stations and smartphone businesses because it relies heavily on foreign chips to make those, further denting China’s ambition to play a key role in global rollout of 5G technology. Huawei’s stockpiles of certain self-designed chips essential to telecom equipment will run out by early 2021.

Nokia Oyj and Ericsson AB stand to benefit from Huawei’s further faltering in its 5G prowess, while domestic smartphone rivals including Xiaomi, Oppo and Vivo are likely to get a bigger pie of the Chinese market.

Ross said the action was aimed at closing loopholes the company explored after previous U.S. actions. Secretary of State Michael Pompeo praised the move as a “direct blow” against the Chinese Communist Party.

The company has long rejected accusations that its technology can be used to spy on foreign nations or companies.

All chip companies working for Huawei, no matter where they are, will be subject to licenses, a Commercial official said, adding that even foreign companies will be affected as long as they use U.S. design software and equipment.

That means major Asian and European chip companies such as MediaTek Inc., Samsung Electronics Co., NXP Semiconductors NV, and STMicroelectronics NV may need a license to continue shipping to Huawei, though the official declined to name any specific company.

There are few semiconductor companies in the world, including those in China, that do not rely on software from U.S.-based Synopsys Inc. and Cadence Design Systems Inc. to create blueprints for chips. Many companies that make physical chips, including China’s own Semiconductor Manufacturing International Corp., use equipment from U.S.-based Applied Materials Inc. and Lam Reserach Corp.

‘Significant disruption’

Among Synopsys and Cadence’s customers, Taiwan’s MediaTek has become a main chip provider to Huawei after Taiwan Semiconductor Manufacturing Co. said it will no longer ship chips to the Chinese company after Sept. 15. That’s due to the U.S.’s export-control rules added in May, which forbade companies from making chips based on Huawei’s design using American equipment.

John Neuffer, the president and chief executive officer of the U.S.’s Semiconductor Industry Association, said the rule “will bring significant disruption” to the sector.

“We are surprised and concerned by the administration’s sudden shift from its prior support of a more narrow approach intended to achieve stated national-security goals while limiting harm to U.S. companies,” Neuffer said in a statement. “We reiterate our view that sales of non-sensitive, commercial products to China drive semiconductor research and innovation here in the U.S., which is critical to America’s economic strength and national security.”

The latest U.S. restrictions on Huawei are negative for European chipmakers, JPMorgan Chase & Co. analysts said in a note, adding that a key risk for firms such as STMicroelectronics, AMS AG and Dialog Semiconductor PLC is Chinese retaliatory restrictions on major customer Apple Inc.

Additionally, assemblers that incorporate Huawei or third-party chips into their devices for the benefit of Huawei will also need to apply for a license, according to the Commerce official. That means Huawei smartphones assemblers, including Hong Kong-listed Foxconn subsidiary FIH Mobile Ltd., may be restricted by the new rules.