The stocks of microchip and semiconductor companies are volatile today on reports that the Biden administration is moving to strengthen chip restrictions on China. The administration is closing loopholes that have enabled American chipmakers to skirt current laws and continue selling their products to China.
The share price of leading chipmaker Nvidia (NASDAQ:NVDA), seen as a bellwether for the industry, is up 1% at noon hour after initially falling when markets opened on media reports that the U.S. government is redoubling its efforts to block the export to China of microchips and semiconductors, particularly those related to artificial intelligence (AI) technologies.
Closing Existing Loopholes
The White House first announced broad restrictions on the shipments of advanced chips and semiconductors, as well as chipmaking equipment, to China in October 2022. Government officials said that the restrictions were meant to ensure that China does not use U.S. technology to improve its competitive position and bolster its military capabilities. However, a year after introducing the restrictions, the White House feels that it now needs to close several loopholes that have been allowing U.S. chip exports to China to continue.
Reuters is reporting that new rules will be introduced this week (Oct. 16-20) that expand on the current restrictions and will block some AI microchips that currently fall just outside the technical parameters of the current export ban to China. The Biden administration is also reportedly planning to demand that U.S. chipmakers report all shipments to China to government agencies in an effort to better track their movements. The U.S. also reportedly plans to introduce new guidelines that will restrict exports to China of advanced data center AI chips that are not currently captured by the rules.
Frayed Relations With China
The restrictions placed on microchip exports are part of a broader crackdown on technology exports to China, which the U.S. government sees as a strategic competitor to America. The curtailment of chip exports also comes at a time of increasing political tensions between Washington, D.C. and Beijing. The two countries, which represent the world’s two largest economies, disagree on a number of issues ranging from Taiwan’s independence to the war in Ukraine. Each country has taken steps this year to limit trade with the other as relations have deteriorated.
In recent weeks, several senior members of the Biden administration have traveled to Beijing to meet their political counterparts in China and try to de-escalate the current tensions. While Chinese officials have not yet responded to reports of the new microchip export restrictions, it’s a safe bet that they won’t like them. Earlier this year, Beijing accused the U.S. of abusing its export controls to deliberately hurt the Chinese economy and Chinese companies. In the U.S., the export restrictions on microchips are seen as hurting the global sales of chipmakers such as Nvidia and others.
China Chip Restrictions: What’s Next
The White House still has to officially announce the broader export restrictions on U.S. microchips and semiconductors. The immediate impact is likely to be a strong reaction from Chinese officials in Beijing and continued volatility among stocks of chip and semiconductor companies. Over the long term, though, the broader export restrictions could help to protect America’s competitive advantage in this important tech space.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
