The United States has implemented sweeping export controls aimed at curbing China’s progress in developing an advanced semiconductor industry and hindering artificial intelligence (AI) technologies with military applications.
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These restrictions were announced by U.S. Commerce Secretary Gina Raimondo and will affect both U.S. companies and foreign companies that use U.S. technology in their chipmaking equipment. This news follows a report last week that the U.S. was considering softening its stance on chip exports to China.
Raimondo described the controls as “groundbreaking and sweeping” and stated, “They’re the strongest controls ever enacted by the U.S. to degrade the People’s Republic of China’s ability to make the most advanced chips that they’re using in their military modernization.”
U.S. Will Restrict Export of HBM Component
As part of these restrictions, the U.S. will ban the export of advanced high-bandwidth memory (HBM), a critical component for AI chips, as well as key chipmaking tools. Additionally, the U.S. Commerce Department will add 140 Chinese entities to its “entity list,” a blacklist requiring U.S. and other companies to apply for nearly unattainable export licenses.
This list includes major players such as Semiconductor Manufacturing International Corporation (SMIC) and Huawei, along with other Chinese firms producing chipmaking equipment. Furthermore, the new rules will restrict the export of 24 types of chipmaking tools.
How Will the U.S. Ensure Compliance of These Restrictions?
To ensure compliance, the U.S. will apply the foreign direct product rule (FDPR), which extends restrictions to non-U.S. companies using U.S.-origin components in their tools. According to a Financial Times report, while the U.S. has granted exemptions to allies like Japan and the Netherlands, South Korea has yet to secure an exemption.
The report quoted an official stating that the FDPR would make it difficult for U.S. groups to bypass these controls by producing tools in countries like Singapore or Malaysia for export to China.
Interestingly, while the U.S. has expanded the FDPR to cover nearly all global chipmaking tools, it selectively targets only some shell companies of Huawei and SMIC, leaving others unaffected.
What Is the Best Chip Stock to Buy Now?
The new export controls are expected to impact Lam Research (LRCX), KLA (KLAC), Applied Materials (AMAT) and Dutch chip making equipment company, ASML (ASML). For investors interested in investing in the chip sector, we have rounded up chip stocks that analysts are bullish or cautiously optimistic about using the TipRanks Stocks Comparison tool.
