Chip stocks tumble on geopolitical concerns; Nvidia down 7%

Shares of semiconductor stocks have come under massive pressure as the U.S. is considering more stringent trade curbs in its crackdown on China's access to advanced chips.

The Biden administration is said to be weighing stricter trade restrictions if companies such as Tokyo Electron Ltd. and ASML (AS:ASML) continue to provide China access to advanced semiconductor technology.

Shares of Nvidia (NASDAQ:NVDA) and TSM both dropped 7% during US market hours, while other stocks like Broadcom (NASDAQ:AVGO), Micron (NASDAQ:MU) and AMD (NASDAQ:AMD) also retreated. 

According to a report from Bloomberg, the Biden administration is facing pushback to its chip crackdown on China. The U.S. government is said to have told allies it is considering using the harshest trade restrictions available if they continue giving China access to advanced semiconductor technology.

The U.S. is reportedly contemplating whether to impose a measure called the foreign direct product rule, or FDPR, which lets the country impose controls on foreign-made products that use even the tiniest amount of American technology.

The move would be used to clamp down on business in China by Japan’s Tokyo Electron and the Netherlands’ ASML, which make chipmaking machinery that’s vital to the industry.

Bloomberg said the US is presenting the idea to officials in Tokyo and the Hague as an increasingly likely outcome if the countries don’t tighten their own China measures.

The publication states that the U.S. government is in a tough position. U.S. companies feel that restrictions on exports to China have unfairly punished them, and allies see little reason to alter their policies as the US presidential election is just a few months away.

(Senad Karaahmetovic contributed to this report).