On Monday, semiconductor stocks declined amid news that the U.S. administration under President Trump is set to strengthen restrictions on China’s tech industry by broadening existing regulations to cover subsidiaries of companies already under sanctions.
A report from Bloomberg on Friday detailed a proposed rule requiring U.S. government approval for any transactions involving companies majority-owned by entities currently facing U.S. trade restrictions. This aims to close a loophole where sanctioned firms establish new subsidiaries to evade existing controls.
In premarket trading, U.S. chip stocks saw declines, with Nvidia (NASDAQ:NVDA) falling about 1%, Marvell Technology (NASDAQ:MRVL) dropping 1.7%, and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) slipping 0.7%. The iShares Semiconductor ETF (NASDAQ:SOXX), which tracks the sector, also edged down nearly 1%.
Chinese semiconductor firms were affected as well: SMIC’s shares fell 1.1% in Hong Kong, while Hua Hong Semiconductor lost close to 3%.
Several major Chinese tech companies, such as Huawei and Yangtze Memory Technologies, are already included on the U.S. Entity List as part of ongoing efforts to curb China’s technological advancements.
The new regulation is intended to strengthen enforcement and prevent a repeated cycle of sanctions evasion, described by some U.S. officials as a “whack-a-mole” challenge.
This move comes amid escalating tensions between the U.S. and China. Last Friday, President Trump accused China of undermining recent trade talks in Geneva, while Beijing criticized U.S. export controls on chips. The U.S., in turn, condemned China’s restrictions on critical mineral exports.
The expanded rule would affect companies that are 50% or more owned by entities listed on the Entity List, Military End-User List, or the Specially Designated Nationals List.
The regulation could be announced as soon as June, though the final details and timeline are still under consideration. Additional sanctions targeting key Chinese tech firms are expected to follow once the rule is finalized.