The Biden administration is fighting to overcome opposition from allied nations and the tech industry as it prepares to expand restrictions aimed at slowing China’s ability to make the most advanced semiconductors, which could be used to bolster Beijing’s military capacity.
The administration has drafted new rules that would limit shipments to China of the machinery and software used to make chips from a number of countries if they are made with American parts or technology, as well as some types of semiconductors, according to people who have seen or were briefed on a draft version of the rules.
The rules are aimed at blocking off some of the newer routes that Chinese chipmakers have found to acquire technology, despite international restrictions.
The United States has been pushing allies like Japan and the Netherlands to toughen their restrictions on technology shipments to China, during visits to those countries as well as a Japanese state visit to Washington in April. Those nations are home to companies that produce chip-making machinery, like ASML Holding N.V. and Tokyo Electron Limited. But industry in the United States and other countries has argued the rules could hurt them, and it remains unclear when or if foreign governments will issue limitations.
In the meantime, some of the rules that the United States plans to impose would have significant carve-outs, the people said. The rules blocking shipments of equipment to certain semiconductor factories in China would not apply to more than 30 allied countries, including the Netherlands, South Korea and Japan.
That has sparked pushback from U.S. firms, who argue that the playing field will be further tilted against them if the U.S. government stops their sales but not those of their competitors.
U.S. officials say negotiations are ongoing, and that they still hope to persuade Japan and other countries to tighten their restrictions. But some analysts are skeptical.
Emily Kilcrease, a senior fellow at the Center for a New American Security, said that while U.S. allies are increasingly wary of a threat from China, they are more comfortable with rules that limit only the most advanced technology.
“The broader the controls get, the more it hurts them commercially,” she said.
Ms. Kilcrease said that U.S. firms were also “not happy” about the U.S. move to restrict the activity of American companies but not their competitors in allied countries.
Gregory Allen, an analyst at the Center for Strategic and International Studies, said that countries like South Korea were now making significant updates to their export control rules, after having been urged to do so by the United States.
“I think they’ve made a lot of progress,” he said. “My question is always, are they making progress fast enough to deal with Chinese countermeasures?”
A spokeswoman for the Commerce Department said that it was continually updating export controls to protect U.S. national security and remained committed to working closely with allies.
A representative for the Chinese Ministry of Commerce said the United States had abused export control measures, and China hoped other countries would resist U.S. economic coercion.
Much about the policy remains unclear, and could be subject to change. But the rules — which could come as soon as this month — are clearly an effort to shore up previous restrictions aimed at limiting China’s ability to develop the most advanced A.I. chips.
Most advanced chips are used in consumer devices, but some can also be used to develop weaponry, carry out cyberattacks and construct surveillance systems.
The U.S. government has blocked American technology exports to China, but a key part of the Biden administration’s strategy has been to get other countries to pass similar regulations. If they don’t, China could still get much of its technology from elsewhere, while American companies would simply lose out on sales. It could also encourage countries not to use American components so they no longer have to follow U.S. rules.
U.S. officials have been trying to get Japan and the Netherlands to target particular companies in China with tougher restrictions, and change their laws to stop their citizens from servicing equipment in chip factories in China.
The effort to get allies to block chip technology to China started in the Trump administration, when the Netherlands agreed to stop shipping China ASML’s most advanced machines.
Then, two years ago, the United States banned shipments globally of advanced chips to China, as well as U.S. exports of chip-making machinery from U.S.-based companies including Applied Materials Inc., Lam Research Corporation and KLA Corporation.
Last year, the Netherlands and Japan agreed to issue restrictions barring shipment of some of their most advanced machinery to China, and the United States further tightened its own rules, including stopping more shipments from ASML and Tokyo Electron.
Still, the Chinese chip industry has continued to progress.
Last year, the Chinese telecom company Huawei rolled out a phone with an advanced chip, a move widely seen as a challenge.
Since then, the Biden administration has been working on tighter rules.
One draft version would place about 120 Chinese companies on a so-called entity list, which requires other companies to obtain a special license to ship them products from the United States. The listings would focus on companies that make chips, chip-making machinery and products and services to support them.
Certain Chinese chip factories would also be subject to international restrictions limiting shipments of equipment made with American parts or technology from certain countries.
The draft list included several Chinese chip factories alleged to be cooperating with Huawei, including SwaySure, Shenzhen Pensun Technology, Pengxinwei IC and Qingdao Si’En. It did not include major Chinese chipmaker CXMT, which was previously rumored to be targeted.
Other rules would restrict shipments of memory chips, which are crucial for training A.I. models. The administration has considered lower thresholds for A.I. chips made by Nvidia and other companies, but it’s not clear if those will be included.
Details of the rules were earlier reported by Reuters and Bloomberg. KLA and Applied Materials declined to comment, while Lam did not respond to a request for comment.
The revised policy would make it harder for U.S. companies to sidestep restrictions by shipping to China from subsidiaries in countries including Israel, Malaysia and Singapore. But surging shipments to China from certain other countries would be unaffected.
ASML said last month that sales to China accounted for nearly half of its revenue in the first quarter. Tokyo Electron has said that the impact of export controls was “smaller than expected,” as it increased sales of less sophisticated equipment to China.
Analysts say that networks of distributors and brokers have sprung up to funnel technology to restricted Chinese semiconductor factories.
U.S. companies also suspect that foreign technicians are helping China to maintain American machinery that was previously sold to Chinese factories.
People familiar with the discussions say that foreign partners have been somewhat skeptical of U.S. national security arguments, and are concerned about Chinese retaliation and lost sales.
Japanese officials did not respond to a request for comment. The Dutch Ministry of Foreign Affairs said it was in close contact with partners and it was up to each country to make its own assessment on export controls.
Paul Triolo, a partner at Albright Stonebridge Group, called the rule “an attempt to skirt head-on confrontation.”
“Nobody wants to run roughshod over allies,” he said. However, the damage from export controls on U.S. industry has been “significant,” he said.
“There’s been a lot of frustration, which the administration has mostly ignored,” he said.
Katie Rogers contributed reporting.