The U.S. has long used its trade powers to limit advanced chipmaking shipments to China, and it is currently considering stricter trade rules if allies continue selling chip technology to China.
The Biden administration is debating the use of 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 restricts the export of any goods to any country if they are manufactured with a certain percentage of U.S. intellectual property components.
The administration has reportedly informed officials in Tokyo and The Hague about its considerations, urging Japan and the Netherlands to tighten their export controls against China. Nearly half of ASML’s second-quarter revenue came from sales to China, Bloomberg reported. ASML is the only company globally that produces equipment necessary for advanced chip manufacturing.
However, U.S. allies seem unmotivated to implement these restrictions ahead of the upcoming U.S. presidential election, and U.S. companies feel unfairly burdened by the export controls, Bloomberg noted. Several U.S. companies, such as chip equipment makers Applied Materials and Lam Research, have reportedly communicated to U.S. officials that current trade restrictions are harming them and are not as effective against China. The chip industry has proposed that the U.S. should instead expand criteria for its unverified list, which mandates companies to have a license to sell restricted items.
Global chip stocks declined on Wednesday following news of the Biden administration’s reported 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 fell nearly 7.5% at market close in Japan. TSMC’s Taiwan-listed shares decreased by 2.4%. In pre-market trading in the U.S., Nvidia’s shares declined 4%, and Applied Materials’ shares fell 5.24%. Both Nvidia’s and Applied Materials’ shares decreased further during morning trading, down 5.9% and 7.3%, respectively.