US Expands Chip Export Controls on China, Exempts Key Allies

The Biden administration is set to unveil a new rule next month that will expand US powers to stop exports of semiconductor manufacturing equipment to certain Chinese chipmakers. Two sources familiar with the rule, speaking on condition of anonymity, revealed the details. While the rule will bar exports to several Chinese chip factories, it will exempt shipments from key allies like Japan, the Netherlands, and South Korea, limiting its impact on major chip equipment manufacturers such as ASML and Tokyo Electron. Shares in both companies surged following the news. This expansion of the Foreign Direct Product rule would affect approximately half a dozen Chinese chip factories at the forefront of China’s most advanced chipmaking efforts. Exports from countries like Israel, Taiwan, Singapore, and Malaysia would be subject to the new restrictions. Reuters could not identify the specific Chinese chip factories that would be impacted. A spokesperson for the US Commerce Department, which oversees export controls, declined to comment. The new rule reflects Washington’s strategy to counter China’s burgeoning semiconductor industry without alienating key allies. The US imposed export controls on chips and chipmaking equipment for China in 2022 and 2023, aiming to hinder supercomputing and AI breakthroughs that could benefit the Chinese military. The Foreign Direct Product rule grants the US government authority to prohibit the sale of any product made using American technology, even if manufactured in a foreign country. This rule has been employed for several years to restrict the supply of chips made abroad to Chinese tech giant Huawei. Another part of the latest export control package will lower the threshold for US content that triggers export restrictions, closing a loophole in the Foreign Direct Product rule. This means that equipment containing even a chip with US technology could be subject to export controls. Additionally, the US plans to add roughly 120 Chinese entities to its restricted trade list, including a half dozen chipmaking factories, toolmakers, providers of EDA (electronic design automation) software, and related companies. While the draft rule is subject to change, the US intends to publish it in some form next month. Besides Japan, the Netherlands, and South Korea, the draft rule exempts over 30 other countries belonging to the A:5 group. The Commerce Department’s website states that it categorizes countries based on factors like diplomatic relationships and security concerns. These classifications determine licensing requirements and streamline export control regulations, ensuring lawful and secure international trade. The planned exemptions indicate the US’s need for diplomacy in implementing restrictions. A separate US official, requesting anonymity, emphasized the importance of multilateral cooperation in effective export controls. The official stated that the US continuously works with like-minded countries to achieve shared national security objectives.