The U.S. has long used its trade authority to limit advanced chipmaking shipments to China, but it is now reportedly considering stricter rules if allies continue selling chip technology to China.
The Biden administration is debating employing an export control known as the foreign direct product rule, which would affect companies such as Japan’s Tokyo Electron and Dutch chip machine-maker ASML, according to Bloomberg, citing unnamed sources. This rule prohibits the export of any goods to any country if they are made with a certain percentage of U.S. intellectual property components.
The Biden administration is reportedly informing officials in Tokyo and The Hague about its considerations if Japan and the Netherlands fail to tighten their export controls against China. Nearly half of ASML’s second-quarter revenue came from sales to China, Bloomberg noted. ASML is the sole global manufacturer of equipment essential for advanced chip production.
However, U.S. allies are reluctant to implement these restrictions ahead of the upcoming U.S. presidential election, and American companies feel unfairly burdened by the export controls, Bloomberg reported. Some U.S. companies, including chip equipment-makers Applied Materials and Lam Research, have reportedly informed U.S. officials that current trade restrictions harm them without significantly affecting China. The chip industry suggests the U.S. expand the criteria for its unverified list, which mandates companies to have a license to sell restricted items.
Global chip stocks fell Wednesday morning following news of the Biden administration’s possible consideration of the FDPR and comments by former President Donald Trump on Taiwan. ASML’s Netherlands-listed shares dropped around 10%, while Tokyo Electron’s shares declined nearly 7.5% at the close in Japan. TSMC’s Taiwan-listed shares fell by 2.4% at market close. In pre-market trading, U.S.-based Nvidia’s shares were down 4%, and Applied Materials’ shares were down 5.24%. During morning trading, Nvidia’s shares further dropped by 5.9%, and Applied Materials’ shares fell by 7.3%.