Trump officials weighed broader China tech restrictions ahead of trade talks

The Commerce Department unit overseeing export controls in recent weeks weighed tougher limits on semiconductors, including cutting off sales to China of a wider swath of chip-manufacturing equipment, people familiar with the matter said. Such a move would have covered equipment used to make everyday semiconductors, expanding beyond existing export limits on equipment for producing advanced chips.

The decision could have roiled supply chains for chips needed to make everything from smartphones to cars, while threatening billions of dollars in sales for leading equipment companies such as Applied Materials, Lam Research and KLA.

The restrictions were discussed as an option if trade talks didn’t go well and are no longer actively being considered, a White House official said. The official declined to say whether they might still be an option down the road.

In London last week, the U.S. and China agreed to reinstate a recent truce they had reached cutting sky-high tariffs. The detente involves U.S. access to Chinese rare-earth materials and allowing Chinese students to continue studying at U.S. universities.

Even so, tensions continue. China is putting a six-month limit on the sales of rare earths to U.S. carmakers and manufacturers, giving Beijing leverage if the trade conflict flares up again, The Wall Street Journal has reported.

Ahead of the London talks, the U.S. hit companies in industries from jet engines to chemicals with export limits.

Restrictions on semiconductors have been a key issue in U.S.-China trade talks, including the recent discussions in London. Making chips requires specialized equipment to add thin layers of various materials to silicon wafers. Much of the equipment is made by companies in the U.S., the Netherlands and Japan, giving the West leverage.

“In the economic war with China, this is the most powerful weapon we’ve got," said Dmitri Alperovitch, co-founder of the Silverado Policy Accelerator think tank and a proponent of wider restrictions. “If you’re going to leverage this trump card, now is the time to do it."

The second Trump administration has taken some fresh steps to hobble China’s artificial-intelligence industry, following curbs put in place by the Biden administration. In one instance, Commerce’s Bureau of Industry and Security is preparing measures to limit the sale of American technology to many subsidiaries and affiliates of Chinese companies subject to a trade blacklist.

Administration officials aren’t always of one mind on the issue, with national-security hawks advocating tougher measures while business-minded officials want to do deals and support sales by U.S. companies.

On the issue of semiconductor-making equipment, the Biden administration considered broad restrictions but ultimately decided to focus on advanced chips, people familiar with the discussions said. Equipment companies have argued that tight restrictions without buy-in from other countries would limit the amount they can invest in research and development and benefit foreign competitors.

China accounts for tens of billions of dollars in revenue for Western equipment companies. The country generated roughly 40% of the revenue for Applied Materials, Lam and KLA in their most recent fiscal years.

Since 2022, the U.S. has used its semiconductor industry to hamstring China, an approach that has drawn criticism from industry executives such as Jensen Huang, chief executive of chip designer Nvidia, who argues the controls motivate China to innovate. The Trump administration has said it wants to share technology with allies while beating back China’s advances.

At a House Committee on Foreign Affairs hearing Thursday, Jeffrey Kessler, the head of Commerce’s Bureau of Industry and Security, said the agency was reviewing “products of strategic significance across the board."

When Rep. Gregory Meeks (D., N.Y.) pressed Kessler about any additional action on the semiconductor industry with respect to China, Kessler said, “I’m sure we will remain active in that space" and “we need to make sure our controls remain effective."

Tech companies have been caught up in a general pause in the approval of new export licenses for a range of products, including chips and chip-making equipment, said people in the industry. BIS has granted few export licenses since President Trump’s inauguration while it reviews the process used to approve such licenses, they said.

Export licenses cover many commercial items and dual-use items with potential military applications. They allow governments to review where such items are sold, to whom and for what purpose.

Without fresh export licenses, U.S. companies would be unable to continue to sell products abroad when existing licenses expire, and foreign buyers might turn to manufacturers in other countries for substitutes, industry analysts say.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com and Liza Lin at liza.lin@wsj.com