The Biden administration is considering imposing the strictest trade restrictions available if companies like Tokyo Electron and ASML Holding continue providing China with advanced semiconductor technology, according to a Bloomberg News report. This headline sparked risk-off sentiment across Japan, Europe, and the US markets.
Seeking leverage with allies, the US is mulling whether to impose a measure called the foreign direct product rule, or FDPR, said people familiar with recent discussions. -BBG
FDPR was first introduced in the late 1950s to regulate the transfer of foreign-made products utilizing US technology, software, or equipment. The rule gives the Department of Commerce's Bureau of Industry and Security the power to control the reexport and transfer of these items.
"Such a step — seen by allies as draconian — would be used to clamp down on business in China by Japan's Tokyo Electron and the Netherlands' ASML, which make chipmaking machinery that's vital to the industry," Bloomberg said, adding, sources said US officials are currently talking with their counterparts in Hague and Tokyo about FDPR maneuvers.
In markets, chip stocks tumbled, with Nikkei heavyweight Tokyo Electron sinking 7.5%. Even earnings from the Dutch semiconductor ASML were not enough to reverse losses, down 8%, sending tech shares lower across Europe.
In the US, Nvidia was down 4%, Advanced Micro Devices and Broadcom lost more than 3%, Apple 2%, and Intel half a percent in premarket trading.
According to analysts, the news overshadowed ASML's better-than-expected orders in the second quarter, which had bolstered confidence that the firm's upper end of its 2025 sales guidance is attainable. Citi and JPMorgan noted that a high proportion of bookings recorded by logic customers suggests that TSMC is likely to place more orders.
Citi analyst Andrew Gardiner told clients, "The geopolitical angle, however, is likely to be in more focus today than results, with Bloomberg reporting the US is pressing for additional restrictions on ASML," adding, "Pressure is building to restrict service activity on the installed base."
Shares of ASML tumble to a near two month low.
This comes as price momentum in the MSCI World Semiconductor and Semiconductor Equity Group Index has stalled since mid-June.
Here's more from Bloomberg:
The administration is in a tenuous position. US companies feel that restrictions on exports to China have unfairly punished them and are pushing for changes. Allies, meanwhile, see little reason to alter their policies when the US presidential election is just a few months away.
The goal is to persuade allies, who have already restricted some shipments of key equipment, to limit their companies' ability to service and repair restricted gear that's already in China — which US firms are barred from doing. The US is also weighing additional sanctions on specific Chinese chip companies, Bloomberg reported earlier.
Chinese Foreign Ministry spokesman Lin Jian responded to the report at a regular press briefing in Beijing, indicating that the US "politicized trade and the concept of national security."
Meanwhile, the three largest US chip equipment manufacturers—Lam Research, Applied Materials, and KLA—have expressed deep concerns with US officials that current restrictive trade policies are backfiring. According to sources citing the US chip firms, these policies harm American semiconductor companies while failing to stop China's technological advancements.