The U.S. government is considering a sweeping expansion of export controls that would assert jurisdiction over all advanced chip sales globally, a move that would fundamentally reshape the semiconductor supply chain and intensify the technological decoupling between major powers. This represents a significant escalation from current country-specific restrictions, aiming to create a unified front to limit China's access to cutting-edge computing power for military and AI development.
Key Takeaways
- The U.S. is drafting a proposal to require a U.S. license for all exports of advanced semiconductors, regardless of the chip's country of origin.
- This "foreign direct product rule" expansion would apply to chips above a certain performance threshold, primarily targeting those used for AI and high-performance computing.
- The policy aims to close loopholes where companies outside the U.S. supply chain, like those using Dutch or Taiwanese equipment, sell advanced chips to restricted entities.
- If implemented, it would mark the most aggressive use of U.S. extraterritorial authority over semiconductor technology to date.
The Proposed Global Licensing Regime
The core of the drafted proposal is an expansion of the Foreign Direct Product Rule (FDPR). Currently, U.S. export controls apply to chips made with U.S. technology or software. The new rule would assert that any advanced semiconductor chip manufactured anywhere in the world using tools from a country participating in the U.S.-led export control coalition is subject to U.S. licensing requirements before it can be sold. This coalition notably includes the Netherlands, home to ASML, the sole producer of extreme ultraviolet (EUV) lithography machines essential for cutting-edge chips, and Japan, a leader in chipmaking materials and equipment.
The performance threshold triggering this control is expected to align with existing U.S. restrictions on exports to China. This currently targets chips with a total processing performance (TPP) exceeding 4,800 or with a performance density exceeding certain limits, benchmarks designed to capture the NVIDIA A100, H100, and H200 GPUs and their successors. The goal is to create a seamless global blockade, preventing Chinese firms from sourcing these critical components through third countries or from non-U.S. designers like France's SiPearl or China's own Biren Technology, if their chips are produced using controlled tooling.
Industry Context & Analysis
This proposal represents a quantum leap in the scope of U.S. techno-nationalist policy. Unlike the initial October 2022 controls, which primarily bound U.S. persons and companies, this move explicitly weaponizes the globalized nature of the chip industry. The U.S. is leveraging its position at the apex of a supply chain where even non-American tools often contain U.S.-origin components or software. For context, the global semiconductor equipment market was valued at over $100 billion in 2023, with U.S. firms like Applied Materials, Lam Research, and KLA holding a combined market share of over 35%. When including Dutch and Japanese allies, the coalition controls an estimated 80-90% of the market for advanced fabrication tools.
The technical implication is a potential bifurcation of the global semiconductor ecosystem into two tracks: a "restricted" track using legacy tooling for the Chinese market, and an "advanced" track for the rest of the world. This follows a clear pattern of escalation. After the 2022 rules, Chinese entities sought chips just below the controlled thresholds and sourced from foundries outside the direct U.S. alliance. NVIDIA responded with the A800 and H800, downgraded versions for China, which were subsequently banned in updated rules. This new global license requirement is the logical endpoint of that cat-and-mouse game, aiming to make the mouse extinct by controlling the entire maze.
Comparatively, this approach is more aggressive than the EU's risk-based framework or Japan's more tailored controls. It mirrors the "maximum pressure" strategy previously applied in other geopolitical domains. The success of this policy hinges on unwavering coalition compliance. While the Netherlands and Japan have broadly aligned so far, this step demands they cede significant sovereign trade policy to U.S. discretion, which could strain alliances, especially if it impacts their domestic chip champions like ASML or Tokyo Electron.
What This Means Going Forward
The immediate beneficiaries are U.S. national security agencies and allied governments seeking to slow China's military AI capabilities. In the medium term, it could provide a protected market for U.S. AI chip designers like NVIDIA, AMD, and Intel, albeit with the significant downside of permanently forfeiting the massive Chinese market. For global foundries like TSMC and Samsung, it introduces immense complexity, requiring them to navigate a U.S. license for nearly every advanced chip they produce, potentially slowing innovation and increasing compliance costs industry-wide.
The most significant change will be the accelerated push for Chinese technological self-sufficiency. China has already committed over $140 billion in its latest chip fund and is making strides with foundries like SMIC, which reportedly produced a 7nm chip in 2023. This rule would pour rocket fuel on those efforts, forcing a faster decoupling. However, creating a parallel, cutting-edge supply chain without EUV lithography remains a monumental, decade-long challenge.
Watch for two key developments next: the formal publication of the draft rule and the subsequent comment period, which will reveal industry pushback, and the reaction from allies in the Netherlands and Japan. Their full-throated endorsement is essential for the rule's effectiveness. If implemented, the era of a truly global, frictionless semiconductor market will be over, replaced by a fragmented landscape defined by geopolitical blocs.