TMTPOST--The Biden administration is set to introduce a new rule next month that will enhance U.S. control over semiconductor manufacturing equipment exports to Chinese chipmakers, Reuters reported, citing two sources familiar with the matter.

However, the rule will exempt shipments from key allies that export essential chipmaking equipment, including Japan, the Netherlands, and South Korea, thereby limiting the rule's impact, the sources said.

Major chip equipment manufacturers such as ASML and Tokyo Electron will not be affected by this rule. Shares in both companies surged following the news.

This new rule, an expansion of the Foreign Direct Product rule, will prevent about half a dozen Chinese fabs involved in advanced chipmaking from receiving exports from many countries, one of the sources mentioned. Affected exporters will include Israel, Taiwan region, Singapore, and Malaysia.

Chinese foreign ministry spokesperson Lin Jian criticized the U.S. efforts, saying they undermine global trade and harm all parties involved. Lin urged relevant countries to resist U.S. pressures and safeguard their long-term interests. He added that such containment measures would only strengthen China's resolve and capability to achieve technological self-reliance.

In an effort to curb supercomputing and AI advancements that might benefit the Chinese military, the U.S. imposed export controls on chips and chipmaking equipment for China in 2022 and 2023. The new rule, still in the draft stage, reflects Washington's ongoing strategy to pressure China's semiconductor industry without alienating its allies.

The Foreign Direct Product rule allows the U.S. government to block the sale of products made using American technology, even if produced in a foreign country. This rule has been employed to restrict chip sales to Chinese tech giant Huawei, which has since adapted and now plays a central role in China's advanced chip production.

Another aspect of the new export control package will lower the U.S. content threshold that triggers foreign items' subjection to U.S. control, closing a loophole in the Foreign Direct Product rule. For instance, equipment could fall under export controls simply because it incorporates a chip made with U.S. technology.

The U.S. also plans to add approximately 120 Chinese entities to its restricted trade list, including several chipmaking fabs, toolmakers, providers of electronic design automation (EDA) software, and related companies.

The official website of U.S. Commerce Departments shows that countries are categorized based on factors such as diplomatic relationships and security concerns, which help determine licensing requirements and simplify export control regulations.

ASML shares rose 6.5% in morning trade in Amsterdam, while Tokyo Electron shares closed 7.4% higher. Other Japanese chip-related equipment manufacturers also saw gains, with Screen Holdings climbing 9% and Advantest up 4.5%.

These planned exemptions indicate the need for diplomacy in implementing such restrictions. “Effective export controls rely on multilateral buy-in,” said a U.S. official. “We continually work with like-minded countries to achieve our shared national security objectives.”