Nvidia and other chip stocks tumble on report the Biden administration is weighing tighter China trade restrictions

• Nvidia fell over 6% Wednesday as the US weighs heavier controls on China's access to chips.
• TSM and ASML also fell, tumbling more than 7% and 10%, respectively.
• The US hopes tighter restrictions on China will encourage other countries to follow suit.

Chip stocks tumbled on Wednesday, with shares of semiconductor stalwarts like Nvidia down sharply as markets digested reports of a tougher crackdown on trade with China.

Nvida fell more than 6%, while Taiwan Semiconductor Manfacturing Company was down almost 7%, and ASML dropped more than 10%.

The pain in the sector comes as President Joe Biden's administration is reportedly considering even tighter restriction on China's access to high-tech US chip products.

According to Bloomberg , the administration is weighing the use of a rule that allows controls on foreign products that use any American-made tech. It would target companies like TSMC and ASML — both of which are crucial machinery producers for China's own chipmaking business.

In practice, the rule would likely force Taiwan and the Netherlands, where TSMC and ASML respectively based, to tighten their own trade regulations with China.

Implementing the rule would be the Biden administration's latest attempt at cracking down on China's chipmaking business in the hopes of further boosting chipmaking in the US and limiting Beijing's access to cutting-edge technology.

Last November, the US Department of Commerce's Advanced Computing Chips Rule increased sanctions on American-made advanced AI chips, making it increasingly difficult for China to import those from Nvidia, whose chips have been in huge demand to power AI models. And in March, the Biden administration considered sanctions on Chinese semiconductor firms linked to China-based Huawei .

The US blocked China from importing advanced Nvidia chips in 2022, but hasn't completely stopped the chips from making their way into the country with some reports of travelers smuggling the chips in their suitcases or buying via resellers.