The Trump administration is widening its pressure campaign on China’s semiconductor sector by targeting the software used to design chips. According to people familiar with the move, the US Department of Commerce has told electronic design automation companies to stop supplying their technology to Chinese groups.
The action is aimed at making it harder for China to develop advanced chips, especially the leading-edge artificial intelligence chips that sit at the center of the current technology contest between Washington and Beijing.
What the new directive targets
The companies affected are part of the electronic design automation, or EDA, industry. These tools are used by chip designers and manufacturers to develop and test new generations of semiconductors before they are made.
EDA software is not the largest part of the semiconductor industry by revenue, but it plays an important role in the supply chain. Without design and testing tools, building more advanced chips becomes more difficult, slower, or more dependent on alternative suppliers.
Several people familiar with the matter said the US Department of Commerce told EDA groups, including Cadence, Synopsys, and Siemens EDA, to stop supplying their technology to China. The Bureau of Industry and Security, the part of the Commerce Department that oversees export controls, issued the directive through letters, according to those people.
It was unclear whether every US EDA company had received a letter. That uncertainty matters because the industry is concentrated, and the practical reach of the directive depends on which suppliers are covered and how the restrictions are applied.
Why EDA software matters in the AI chip race
The move is another attempt by Washington to limit China’s ability to produce cutting-edge AI hardware. In April, Washington restricted the export of Nvidia’s China-specific AI chips, and the new EDA action pushes further upstream in the chip development process.
Instead of focusing only on finished processors, the directive targets the software layer that helps make advanced chips possible. That can affect both chip designers and manufacturers, because EDA tools support the process of creating and testing next-generation designs.
Three major companies hold a large position in China’s EDA market. Synopsys, Cadence Design Systems, and Siemens EDA, which is part of Siemens Digital Industries Software, a subsidiary of Germany’s Siemens AG, account for about 80 percent of China’s EDA market.
The business exposure is also material. In fiscal year 2024, Synopsys reported almost $1 billion in China sales, roughly 16 percent of its revenue. Cadence said China accounted for $550 million or 12 percent of its revenue.
Companies respond as markets react
On its second-quarter earnings call on Wednesday, Synopsys chief executive Sassine Ghazi addressed the reports directly. He said: “We are aware of the reporting and speculation, but Synopsys has not received a notice from BIS. So, our guidance that we are reiterating for the full year reflects our current understanding of BIS export restrictions, as well as our expectations for a year-over-year decline in China [revenue].”
Synopsys and Cadence did not immediately respond to requests for comment. Siemens said in a statement that the EDA industry had been informed last Friday about new export controls.
Siemens said it had supported customers in China “for more than 150 years” and would “continue to work with our customers globally to mitigate the impact of these new restrictions while operating in compliance with applicable national export control regimes.”
Investors reacted quickly. Synopsys shares fell 9.6 percent on Wednesday, while Cadence lost 10.7 percent. Ansys shares fell 5.3 percent on Wednesday after another development affecting Synopsys and Ansys.
Last year, Synopsys agreed to buy Ansys, a US simulation software company, for $35 billion. The deal still requires approval from Chinese regulators. On Wednesday, the US Federal Trade Commission announced that both companies would need to divest certain software tools to receive its approval for the deal.
A fragile trade backdrop
The directive arrives during a sensitive stretch in US-China trade relations. The two countries recently agreed in Geneva to pause tit-for-tat tariffs for 90 days while trying to reach a trade deal.
The Financial Times reported last month that the Trump administration intended to place a number of Chinese chipmakers on a blacklist that would make it extremely difficult for US companies to provide them with American technology. Some officials pushed for a delay to avoid putting the trade talks at risk.
Christopher Johnson, a former CIA China analyst who heads China Strategies Group, said the new export controls showed the “innate fragility of the tariff truce reached in Geneva. With both sides wanting to retain and continue demonstrating the potency of their respective chokehold capabilities, the risk the ceasefire could unravel even within the 90-day pause is omnipresent.”
Johnson also said China had used its control over rare earths to bring the US to the negotiating table in Geneva, which “left the Trump administration’s China hawks eager to demonstrate their export control weapons still have purchase.”
What comes next for China’s chip design ecosystem
The US has used EDA restrictions before. In 2022, the Biden administration introduced restrictions on sales of the most sophisticated chip design software to China, although companies continued selling export control-compliant products there.
During his first term as president, Donald Trump banned China’s Huawei from using American EDA tools. Huawei is viewed as an emerging competitor to Nvidia with its “Ascend” AI chips.
The pressure has also had a second effect: it has encouraged Chinese competitors. The source article identifies three leading Chinese EDA companies, Empyrean Technology, Primarius, and Semitronix, as having significantly grown their market share in recent years.
Shares of Empyrean, Primarius, and Semitronix rose more than 10 percent in early trading in China on Thursday. That market reaction suggests investors see the restrictions as a possible opening for domestic EDA suppliers, even as the broader goal of the US policy is to slow China’s access to advanced chipmaking capabilities.
Nvidia chief executive Jensen Huang recently warned that repeated efforts by American administrations to weaken China’s AI ecosystem through export controls had failed. The new directive shows Washington is continuing to test how much leverage export controls can provide in the competition over AI chips.