The US is widening its campaign to limit China’s ability to produce advanced AI chips at home. New Commerce Department restrictions announced on Monday target not only exports from the US, but also foreign-made systems that include US technology.
The move is aimed at the manufacturing layer behind AI hardware: the tools, software, factories, suppliers, and investment channels that help turn chip designs into working semiconductors.
What the new chip export rules block
The US Department of Commerce described the measures as its most extensive restrictions on semiconductor exports to China. The rules block access to 24 types of chip manufacturing equipment and three software programs.
That matters because advanced AI chips depend on a chain of specialized production tools. If a factory cannot obtain the right equipment or software, it may struggle to build or expand the kind of capacity needed for domestic AI chip production.
US Commerce Secretary Gina Raimondo framed the controls as a national security measure. She told reporters: “They're the strongest controls ever enacted by the US to degrade the PRC’s ability to make the most advanced chips that they're using in their military modernization,”
The restrictions therefore focus on capability, not just finished products. Instead of only limiting access to advanced chips after they are made, the US is trying to restrict the means of making them.
The Foreign Direct Product Rule becomes broader
One of the biggest changes concerns the Foreign Direct Product Rule, also known as the FDP. Under the prior approach, a 25 percent threshold for US components applied to foreign chip production facilities.
That threshold will no longer apply. Going forward, all systems containing US technology will fall under export restrictions, regardless of the percentage.
This is a major shift because it expands the reach of US export controls beyond equipment that is clearly or mostly American. A foreign production system can now fall under the rules if it contains US technology at any level.
In practical terms, this gives US authorities a wider basis for limiting what Chinese chip factories can buy, receive, or use. It also places more responsibility on companies outside the US to examine whether their products contain controlled US technology.
Why analysts expect pressure on Chinese fabs
According to semiconductor publication Semianalysis, removing the FDP threshold could severely affect Chinese chip factories. The publication said US authorities could immediately halt the expansion of Chinese production capacity.
Existing facilities could also face major restrictions or become inoperable within six months, according to the same assessment. That creates a direct risk for factories that depend on restricted tools, software, support, or replacement access.
The Commerce Department also added 140 Chinese companies to its sanctions list. The listed entities include tool manufacturers, chip factories, and investment firms.
Those companies now need special licenses to obtain US software or products. That does not simply affect one part of the supply chain. It reaches across companies that make tools, companies that operate chip factories, and companies that finance or support the sector.
The result is a tighter operating environment for China’s semiconductor industry. Access to certain products may now depend on special approval, and expansion plans may face new constraints if the required systems or software fall under US controls.
Washington targets workarounds as well as equipment
The new rules also address attempts to avoid earlier sanctions. The source article identifies Chinese manufacturer SMIC as an example.
SMIC had previously bypassed sanctions using a “wafer bridge” between its sanctioned high-end production and a non-sanctioned legacy facility. The new regulations include “red flag” guidelines intended to help companies identify such attempts.
This detail shows that the US is not only writing rules for direct exports. It is also trying to close paths that can connect restricted activity with facilities or channels that were not previously sanctioned.
For suppliers, the red flag guidelines add another compliance layer. Companies are being pushed to look beyond the immediate buyer and consider whether a transaction could support a restricted production route.
China rejects the US rationale
China criticized the measures. Foreign Ministry spokeswoman Mao Ning said the US was “overstretching the concept of national security” and disrupting the international economic order.
That response reflects the broader dispute over whether semiconductor controls are legitimate security policy or an attempt to weaken China’s technology development. The source article does not provide further details on China’s next steps, so the immediate picture is a sharp policy clash rather than a negotiated outcome.
The Commerce Department has also recently ordered Taiwanese chip manufacturer TSMC to stop providing advanced chips to Chinese customers. Together with the new rules on equipment, software, sanctioned companies, and workarounds, that points to a strategy focused on multiple stages of the AI chip pipeline.
The immediate effect is uncertainty for Chinese chip production and for companies that sell into the semiconductor supply chain. The longer-term issue is whether China can maintain or expand advanced AI chip manufacturing when access to key tools and software is increasingly restricted.