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Why microchip stocks crashed last night

The Biden administration has been facing resistance to its crackdown on chip technology exports to China.

In response, it has informed allies that it might implement the strictest trade restrictions if companies like Tokyo Electron and ASML keep supplying advanced semiconductor technology to China.

The US is considering using the foreign direct product rule (FDPR), which basically bans foreign-made products that contain even a small amount of American technology.

This measure, viewed by allies as extreme, would target companies like Japan’s Tokyo Electron and the Netherlands’ ASML, which produce essential chipmaking equipment.

The US has been discussing this potential move with officials in Tokyo and The Hague, making it clear that if these countries do not tighten their regulations on China, the US might proceed with the FDPR.

The administration is in a tricky spot.

US companies feel that the export restrictions to China are unfairly hurting them and are pushing for changes. Meanwhile, allies are hesitant to adjust their policies with the US presidential election just a few months away.