The use of the so-called foreign direct product rule will prevent companies anywhere in the world from selling certain advanced computing chips to Chinese buyers without a U.S. government license if the companies use American technology to make the chips, according to several people briefed on the measure, who spoke on the condition of anonymity to discuss the still-unannounced plans.
The rule would apply to semiconductor chips used in supercomputers and certain artificial intelligence applications.
Such advanced computing systems can be used to develop nuclear weapons, hypersonic missiles, and missile defenses, officials said. A loss of U.S. leadership here would “severely compromise” national security and “undermine profitable parts of the U.S. economy,” according to a 2016 report by the National Security Agency and the Department of Energy.
The foreign direct product rule is a particularly harsh trade measure because the rule imposes restrictions not just on chipmakers in the United States, but on any company or factory in the world that relies on American equipment or software to make chips. There is hardly a semiconductor on the planet today that is not made with American tools or designed with software that originated in the United States.
The administration also wants to restrict the export to China of chip-making tools used by Chinese companies such as the country’s leading memory chipmaker, YMTC, and the leading Chinese producer of processors, SMIC. If the rule is enacted as currently envisioned, it would cut off access to American manufacturing and design tools for chips that are 14 nanometers in size or smaller.
“What they’re doing is a stark departure from 30 years of policy,” said Eric Sayers, managing director at Beacon Global Strategies, a national security consulting firm. “It’s a form of technology containment. Not just to stay ahead of China, but to degrade their ability to try to catch up with us.”
Restrictions on China’s largest chip makers could have a significant impact, said Dan Wang, technology analyst at Shanghai-based research firm Gavekal Dragonomics. “They would hurt these companies and their customers, which include leading Chinese electronics makers and internet platforms,” he said.
The Biden administration also is planning to place more Chinese organizations on an export blacklist called the Entity List.
The White House and Commerce Department declined to comment.
Reuters earlier reported on some of these measures.
A plethora of Chinese companies that use high-end AI chips made with American tools or designs are likely to be affected by that rule, analysts said.
Some U.S. chipmakers and manufacturing equipment sellers in recent weeks have publicly said they received government notifications about the new restrictions, including equipment manufacturers Lam Research, KLA Corp. and Applied Materials, as well as chipmakers Nvidia and AMD.
The administration has signaled its intention to use more of its powers to curb Beijing’s efforts to harness technology to gain a global advantage militarily and economically.
“On export controls, we have to revisit the long-standing premise of maintaining ‘relative’ advantages over competitors in certain key technologies,” national security adviser Jake Sullivan said in a speech last month, alluding to China.
The approach of staying only “a couple of generations ahead” is no longer tenable, he said.
When the United States used the foreign direct product rule, or FDPR, to deprive Huawei of chips, it crippled Huawei’s production and sales.
After Russia invaded Ukraine, the United States also used the FDPR to block companies from selling certain semiconductors to buyers in Russia, a ban that U.S. officials say is hurting Russia’s military.
One industry executive, who was not authorized to speak on the record, said the new rules and the administration’s general concerns about China will increasingly make it “really difficult” to do business there.
“We’ve been hearing from the administration that they want us to find customers outside of China,” the executive said.
