The Trade Wars Are About to Begin?
The U.S. has long used its trading powers to restrict advanced chipmaking shipments to China, but it’s now considering even tougher trade rules if allies continue selling chip technology to China. The Biden administration is debating the use of the foreign direct product rule (FDPR), which could impact companies like Japan’s Tokyo Electron and Dutch chip machine-maker ASML, according to Bloomberg. This rule prohibits the export of goods to any country if they contain a certain percentage of U.S. intellectual property components.
Stock market today: Indexes slide as Biden plan to tighten China chip crackdown weighs on tech https://t.co/QNCF4zHiuG
— Markets Insider (@MktsInsider) July 17, 2024
The administration is reportedly informing officials in Tokyo and The Hague that if Japan and the Netherlands don’t tighten their export controls against China, the U.S. might implement the FDPR. This is significant as nearly half of ASML’s revenue for the second quarter came from sales to China. ASML is the only company globally that makes the equipment necessary for advanced chip manufacturing.
However, U.S. allies are hesitant to impose new restrictions with the U.S. presidential election approaching, and U.S. companies feel unfairly pressured by the existing export controls. Companies like Applied Materials and Lam Research have expressed to U.S. officials that current trade restrictions are hurting them without effectively deterring China. The chip industry suggests expanding the criteria for the unverified list, which requires companies to have a license to sell restricted items.
Biden Shamelessly Weighs in on Cozying Up to China-Russia Alliance https://t.co/RjlHb9n2lf via @
— Trace1984 America First Ohio Patriot 🇺🇸 (@1984_Trace) July 16, 2024
News of the Biden administration’s consideration of the FDPR and remarks by former President Donald Trump on Taiwan caused global chip stocks to fall on Wednesday. ASML’s Netherlands-listed shares dropped by about 10%, Tokyo Electron’s shares fell nearly 7.5% in Japan, and TSMC’s Taiwan-listed shares were down 2.4%. In the U.S., Nvidia’s shares fell 4% in pre-market trading and dropped further to 5.9% during morning trading, while Applied Materials’ shares decreased by 5.24% pre-market and 7.3% during morning trading.
Key Points:
- The U.S. is considering tougher trade rules, specifically the foreign direct product rule (FDPR), to curb chip tech sales to China.
- The Biden administration is 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, highlighting the impact of potential restrictions.
- U.S. companies feel current trade restrictions are harming them without effectively deterring China.
- News of these potential trade rules and remarks by former President Trump on Taiwan caused global chip stocks to fall significantly.
Kirk Volo – Reprinted with permission of Whatfinger News
