Here’s why chip stocks are falling

Shares in several chipmakers fell over the past two days, as reports of enhanced U.S. export controls on China and former President Trump’s comments about defending Taiwan roiled the industry. 

Taiwan Semiconductor Manufacturing Co.’s (TSMC) stock fell 7.7 percent from market close Tuesday to market close Thursday. However, it recovered slightly Thursday afternoon after reporting better-than-expected earnings in the second quarter. 

ASML Holding’s stock fell 13.5 percent over the same two-day period, while Advanced Micro Devices (AMD) slid 12.3 percent and Nvidia dipped 4.2 percent. 

The industry has taken a beating on the market since Bloomberg reported late Tuesday that the Biden administration was considering stricter trade restrictions to prevent China from obtaining advanced semiconductor technology. 

The administration is reportedly considering imposing a measure called the foreign direct product rule, which allows the U.S. to restrict the sale of foreign-made products that use American technology.  

The rule could be used to clamp down on business between Beijing and companies like ASML Holding, which is based in the Netherlands. 

The chip stocks also took a hit after Trump suggested that Taiwan should pay for its U.S. protection and appeared skeptical about America’s longstanding commitment to defend the self-governed island from China. 

“Taiwan took our chip business from us,” he told Bloomberg Businessweek. “I mean, how stupid are we? They took all of our chip business. They’re immensely wealthy.”  

“I don’t think we’re any different from an insurance policy,” Trump added. “Why? Why are we doing this?” 

Taiwan, which plays a central role in the semiconductor industry, faces an increasingly emboldened China that has stepped up its military drills and patrols around the island in recent years. 

Beijing considers Taiwan, which split from the mainland in 1949, to be part of the country and has vowed to take it by force if necessary.