The United States has been fighting with China on trade issues for several years now, but reports last week suggest that the US could up the ante in a significant way. Reportedly, the US may put pressure on companies like TSMC to stop selling components to the Chinese manufacturer in an effort to cut off its access to US technology.

Sources for the story make it clear that the US is considering this move rather than already having decided on it, and that President Trump hasn’t been briefed on the issue yet. To accomplish this, the US would make changes to the Foreign Direct Product Rule (FDRP). Any company using US chip-making equipment would be forced to seek a license from the United States in order to sell components to Huawei, Reuters reports. Chip manufacturing equipment built by companies like Applied Materials, KLA, and Lam Research is critical to the production of semiconductor equipment globally.

The impact of this kind of move could be extraordinary, particularly now that COVID-19 is slicing into global economic output. The PC industry is expected to tank in Q1 after posting its first gains in almost a decade last year. China’s CO2 emissions are down 25 percent from typical for this time of year, resulting in a 6 percent drop in global emissions over the same period. Epidemiologists are warning that the idea of containment as a strategy is under serious stress. That doesn’t mean COVID-19 is going to start slaughtering people — the fatality rate is two percent — but it would be foolish to assume we already know the impact coronavirus is going to have on the global economy. The situation is evolving on a day-by-day basis.

The consequences of forcing (or attempting to force) foreign countries to seek permission from the United States to sell to Huawei could be messy. The mainland Chinese people generally regard Taiwan as part of their own nation, not as an independent country. Imagine the uproar in the United States if China ordered Intel not to sell products to anyone from Illinois. TSMC certainly isn’t going to welcome the interference — Huawei is reportedly the company’s largest customer after Apple, accounting for some 10 percent of its business, according to The Wall Street Journal. Essentially, the United States would be gambling that US chip manufacturing equipment is so critical to the rest of the world, companies would choose to keep buying from US firms rather than do business with Huawei.

In the short term, this would probably work, at least to some extent. Long-term, however, the result could be a weakening of the US leadership position in semiconductor manufacturing. At a minimum, the US would be creating substantial incentives for other companies and governments to invest in chip-manufacturing equipment manufacturing production.

The United States government has tried to persuade other countries that Huawei equipment represents a unique risk to global communications networks but has enjoyed only limited success. Government officials are meeting on Feb. 28 to discuss a range of potential actions and restrictions that could be placed on Huawei or the companies attempting to do business with it.

Thus far, the United States has borne the brunt of the cost of Trump’s trade war with China, according to multiple analyses. Taking this type of specific action against Huawei would not be well-received by the Chinese, but Chinese trade hawks may be willing to bet that COVID-19 is a big enough issue that China wouldn’t risk much more than some saber-rattling. There are already reports that TSMC is looking to limit its support for Huawei, but the company isn’t saying a word on the topic.

Now Read: