The U.S. has used its trade powers for years to limit advanced chipmaking shipments to China, and it is now reportedly considering stricter trade rules if allies continue selling chip technology to China.
The Biden administration is considering employing an export control called the foreign direct product rule, which would affect companies such as Japan’s Tokyo Electron and Dutch chip machine-maker ASML, according to Bloomberg, which cited anonymous sources. This rule prohibits the export of any goods to any country if they are manufactured 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, especially if Japan and the Netherlands don’t strengthen their export controls against China. Nearly half of ASML’s second-quarter revenue came from sales to China, Bloomberg reported. ASML is the sole manufacturer of the equipment necessary for advanced chip production.
However, U.S. allies are not inclined to implement restrictions given the upcoming U.S. presidential election, and U.S. companies feel unfairly targeted by the export controls, according to Bloomberg. Some U.S. companies, including chip equipment-makers Applied Materials and Lam Research, have told U.S. officials that current trade restrictions are more detrimental to them than to China. The chip industry instead suggests the U.S. expand the criteria for its unverified list, which requires companies to have a license to sell restricted items.
Global chip stocks dropped Wednesday morning following news of the Biden administration’s reported consideration of the FDPR and remarks by former President Donald Trump on Taiwan. ASML’s shares in the Netherlands fell about 10%, while Tokyo Electron’s shares were down nearly 7.5% at the close in Japan. TSMC’s shares in Taiwan decreased by 2.4% at market close. Meanwhile, during pre-market trading, U.S.-based Nvidia’s shares were down 4%, and Applied Materials’ shares were down 5.24%. Both Nvidia’s and Applied Materials’ shares declined further during morning trading, down 5.9% and 7.3%, respectively.