US Considers Further Chip Restrictions For China – Report

The United States is reportedly considering implementing a very tough trade law from the 1950s, to further restrict China’s chip industry.

Bloomberg, citing people familiar with recent discussions, reported that the Biden Administration has told allied semiconductor suppliers (ASML Holding and Tokyo Electron were named) that it is considering implementing the most severe trade restrictions available.

Last month it had been reported that the Biden administration was considering further restrictions for China on a cutting edge AI chip architecture known as gate-all-around (or GAA), as it seeks to stop Beijing’s access to advanced semiconductor technology that could be used to modernise its military.

Chip restrictions

It was also reported last month that American officials had held meetings in the Netherlands and Japan, to urge its two allies to further restrict China’s ability to produce cutting-edge semiconductors.

Alan Estevez, the US export policy chief, had visited both the Netherlands and Japan as part of the the US effort to expand a 2023 agreement between the three countries to keep chip-making equipment from China.

Now Bloomberg has reported that the Biden administration, facing pushback to its chip crackdown on China, has told allies that it’s considering using the most severe trade restrictions available.

It would do so if companies such as Tokyo Electron and ASML Holding continue giving the country access to advanced semiconductor technology.

US chip firms have reportedly pushed for a more relaxed approach.

FDPR rule

Nevertheless, the United States is reportedly considering imposing a measure called the foreign direct product rule, or FDPR.

The FDPR was first introduced in 1959 to control the trading of US technologies.

In essence, the rule states that if a product was made using even the tiniest amount of American technology, the US government has the power to stop it from being sold – including products made in a foreign country.

The US reportedly presented the scenario to officials in Tokyo and the Hague as an increasingly likely outcome if the countries don’t tighten their own China measures, the Bloomberg report added.

ASML declined to comment on the discussions, and Tokyo Electron said it wasn’t in a position to comment on “geopolitical issues”, Bloomberg reported.

China restrictions

The US had announced its sweeping export controls for semiconductor manufacturing equipment to China in October 2022, and the Netherlands had announced in early March 2023 that it too would restrict the export of the chip making kit to China.

Japan then joined the United States and the Netherlands when it said it would restrict exports of 23 types of semiconductor manufacturing equipment going forward (without naming China directly).

The US, the Netherlands and Japan are the only three countries that are home to manufacturers of advanced machines to print microchips.

ASML in 2023 had revealed that it had suffered a data theft of its IP – by a former employee located in China.

Chinese chip fund

But China is responding.

Last September Beijing warned that it would launch a new state-backed investment fund that aimed to raise about $40 billion for its domestic semiconductor sector.

Then in May 2024 China launched the biggest-ever investment fund for the country’s domestic chip industry, valued at 344 billion yuan ($47.5bn, £37bn) as part of its drive toward semiconductor self-sufficiency.

The third phase of the China Integrated Circuit Industry Investment Fund, known as the “Big Fund”, is comparable in size to the roughly $53bn in incentives under the US’ Chips and Science Act, passed in 2022, which the country is using to build up domestic chip manufacturing.