In a move that has sparked widespread concern, the US government is considering imposing a foreign direct product rule (FDPR) on Tokyo Electron and ASML, two major chip equipment companies, that would restrict their exports to China. This unprecedented measure has been met with alarm from global allies, who view it as a draconian attempt to limit China’s ability to develop its own semiconductor industry.

The FDPR, also known as the “foreign direct product rule,” would prohibit US companies from exporting chips and equipment to China that contain more than 10% of US-made components. This move would effectively cripple the chip equipment business of Tokyo Electron and ASML, as well as several other US companies that supply components to them.

The decision is seen as a significant escalation of the US-China trade tensions, which have been escalating in recent years. The US has been concerned about China’s aggressive trade practices, including intellectual property theft and forced technology transfer, which have led to a range of punitive tariffs and restrictions on Chinese exports.

The FDPR is a retaliatory measure aimed at preventing the flow of US technology and expertise to China’s chip industry, which has been growing rapidly in recent years. The US believes that China’s chip industry is heavily subsidized by the government, and that it is using this technology to develop advanced military capabilities, including artificial intelligence and cyber warfare.

Tokyo Electron and ASML, two of the world’s largest chip equipment companies, have been critical to the global semiconductor industry, providing equipment and services to major chipmakers like Intel, Samsung, and Taiwan Semiconductor Manufacturing Company (TSMC). The Chinese government has been aggressively courting these companies, offering them large incentives and subsidies to set up operations in China.

However, the US government is concerned that China’s growing chip industry could lead to increased dependence on foreign technology and expertise, making it vulnerable to intellectual property theft and forced technology transfer. By imposing the FDPR, the US is attempting to limit the flow of US technology and expertise to China’s chip industry, and to prevent the development of advanced military capabilities.

The move has been met with criticism from global allies, who view it as a draconian measure that will harm the global semiconductor industry and damage US-China relations. The European Union, Japan, and South Korea, all of which are major players in the chip industry, have expressed concerns about the potential impact on their industries.

Industry experts have also warned that the FDPR could have unintended consequences, including the creation of a global chip equipment shortage, which would disrupt global supply chains and affect the production of a wide range of electronic devices, from smartphones to automotive systems.

The US government is expected to make a final decision on the FDPR in the coming weeks. While the move is seen as a crucial step in limiting China’s technological advancement, it is likely to spark a fierce backlash from Beijing and global allies, potentially jeopardizing the global chip industry and US-China relations.