U.S. chip stocks dropped Monday following reports that the Trump administration is planning stricter controls on China’s tech sector. The proposed rule would expand current sanctions to include subsidiaries of blacklisted companies, closing a loophole that has allowed Chinese firms to bypass restrictions by creating new corporate entities.
According to Bloomberg, the rule would require U.S. government licenses for transactions involving any firm that is at least 50% owned by a company already on the U.S. Entity List, Military End-User list, or the Specially Designated Nationals list. The regulation, still under discussion, could be introduced as early as June and may pave the way for further sanctions against Chinese tech giants.
The move comes amid rising U.S.-China tensions, especially in the semiconductor sector. On Friday, President Donald Trump accused Beijing of undermining recent Geneva trade negotiations. In response, China expressed frustration over U.S. chip export controls, while the U.S. criticized China’s restrictions on critical minerals.
Markets reacted swiftly. Nvidia (NASDAQ: NVDA) fell 1%, Marvell Technology (NASDAQ: MRVL) dropped 1.9%, and Broadcom (NASDAQ: AVGO) declined 0.9%. Taiwan Semiconductor Manufacturing Co. (TSMC) slipped 0.9%, and the iShares Semiconductor ETF (NASDAQ: SOXX) was down nearly 1% in premarket trading. Chinese chipmakers were also hit, with SMIC down 1.1% and Hua Hong Semiconductor losing nearly 3% in Hong Kong.
This policy shift underscores Washington’s intent to curb China’s tech rise by targeting not only parent companies but also their global subsidiaries. U.S. officials have described the regulatory gap as a game of “whack-a-mole,” emphasizing the need for tighter enforcement to prevent circumvention of existing sanctions.