NextFin News - In a significant escalation of the ongoing technological rivalry between Washington and Beijing, a bipartisan group of U.S. lawmakers has formally urged U.S. President Trump to close critical loopholes in the export of semiconductor manufacturing equipment to China. The push, led by members of the House Committee on Foreign Affairs during a public hearing on February 10, 2026, comes amid growing anxiety that current trade concessions are providing the Chinese government with a strategic window to achieve self-sufficiency in high-end chip production.
According to The Information, the lawmakers are specifically targeting the Bureau of Industry and Security (BIS), calling for increased inspection staff and the immediate closure of trade gaps that allow Chinese firms to bypass restrictions through U.S. subsidiaries and third-party intermediaries. The hearing, titled "Export Control Loopholes: Chipmaking Tools and Their Subcomponents," highlighted a growing rift between the executive branch's recent trade maneuvers and the legislative branch's national security priorities. Michael McCaul, a Republican congressman from Texas, emphasized that the "foreign direct product rule" should be codified into legislation to prevent foreign-made goods containing U.S. technology from reaching restricted Chinese entities.
The urgency of these demands is rooted in a recent deal between U.S. President Trump and Chinese President Xi Jinping, which established a one-year pause on certain export controls in exchange for China relaxing its own curbs on rare earth minerals. A central point of contention is the suspension of the "50 percent affiliate rule," a regulation that would have significantly expanded the number of Chinese entities subject to U.S. trade bans. Sydney Kamlager-Dove, a Democratic congresswoman from California, argued that this pause effectively turns national security tools into "negotiable concessions," giving Beijing ample time to develop workarounds for advanced AI chips and lithography tools.
The push for tighter controls is supported by alarming data regarding China's rapid expansion in the semiconductor sector. According to a report by the U.S.-China Economic and Security Review Commission, China’s production capacity for foundational chips surged by 250 percent between 2015 and 2023, rising from 1.2 million to 3.0 million wafers per month. This massive scaling of "legacy" capacity is viewed by analysts as a strategic move to dominate the global supply of mature-node chips, which are essential for automotive, medical, and industrial applications, thereby creating a new form of economic leverage over the West.
From a structural perspective, the current export control regime faces significant enforcement challenges. Kevin Wolf, a former assistant secretary of commerce, noted that the BIS currently employs only two officers specifically dedicated to export control enforcement within China. This lack of "boots on the ground" makes it difficult to verify the end-use of sophisticated equipment once it leaves U.S. jurisdiction. Lawmakers are now advocating for a shift from an entity-based control model to a broader country-wide control framework, which would require global licenses for an expanded set of technologies to prevent diversion.
The impact of these potential policy shifts extends far beyond the U.S. and China. The effectiveness of any new restrictions depends heavily on the cooperation of the Netherlands and Japan, the world’s other primary sources of advanced lithography and etching equipment. While the U.S. has successfully pressured these allies in the past, the current administration's aggressive tariff policies—including a 24 percent levy on Japanese goods—have strained these relationships. Analysts suggest that if the U.S. President Trump moves to close these loopholes unilaterally, it could trigger further friction with key security partners who are already reeling from broader trade volatility.
Looking ahead, the semiconductor industry is likely to face a period of intense regulatory tightening. If the U.S. President Trump heeds the calls from Congress, we can expect a transition toward a "rent" rather than "sell" model for advanced chips, as suggested by the U.S.-China Economic and Security Review Commission. This would involve more rigorous tracking of hardware throughout its lifecycle. Furthermore, the codification of the foreign direct product rule would represent a permanent shift in global trade law, asserting U.S. jurisdiction over any product globally that utilizes American intellectual property. As Beijing continues to pour state subsidies into domestic R&D to counter these measures, the "chip war" is evolving from a battle over specific components into a total competition over the infrastructure of the future digital economy.
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