On Wednesday, the NASDAQ index plummeted 2.77%, the most significant drop recorded since December 2022.
According to NH Investment Securities analyst Jo Yeon Ju, the drop in the NASDAQ index was attributed to profit-taking movements in AI-related semiconductors and Big Tech shares, which have led the stock market rally for nearly a year and a half. She said, “The Biden administration’s high-level semiconductor crackdown on China stimulated investors to take profits.”
The Biden administration announced that it would apply a stricter trader rule, also known as the Foreign Direct Product Rule (FDPR). Under the new FDPR rule, the U.S. can impose export controls not only on American companies but also on goods made by foreign companies if any U.S.-origin technology has been used in the production or operation of the item, as a means to restrict China from accessing high-end chipmaking tools.
In 2022, the U.S. announced the FDPR against Russia, leading to an exodus of American and European companies from Russia.
Jo explained that the sanctions originated from a meeting between the Biden administration and American semiconductor equipment companies such as Applied Materials and Lam Research. During the meeting, there was dissatisfaction that current sanctions against Chinese semiconductors were harming American companies without effectively preventing technological espionage by China. She analyzed that the policy was primarily aimed at companies, including the Dutch firm ASML and Japan’s Tokyo Electron, as they transferred after-sales service and repair technology for crucial semiconductor equipment to China.
In addition, Trump suggested in a media interview that Taiwan has taken almost 100% of the American semiconductor industry and should pay defense costs to the U.S., even hinting at imposing high tariffs if necessary. He also claimed that he hardly saw American cars in Japan and planned to impose tariffs on Chinese-made Apple products. He referred to Biden’s Inflation Reduction Act (IRA) as a “green new scam,” creating policy uncertainty in the event of Trump’s re-election.
If Biden’s FDPR regulation is implemented, not only American semiconductor companies with a high proportion of sales in China, such as Nvidia (10%) and Micron (11%), but also foreign companies including TSMC (46%), Samsung Electronics (29%), and SK Hynix (30%) are expected to be restricted.
Jo said, “Considering diplomatic resistance from its allies with about four months left until the November election, it may take time to implement comprehensive regulations.”
“There is a possibility that primary sanctions against Dutch and Japanese companies could be implemented,” she added.
The recent plunge in the NASDAQ reflects the uncertainty surrounding the upcoming presidential election rather than a trend change in leading stocks. As the likelihood of Trump’s election grows, Biden and the Democrats ramp up their policy counterattacks, contributing to market volatility.
Jo advised, “Considering the increased policy sensitivity of the financial market due to the early start of the presidential debate and the shooting incident involving Trump, it’s important to be aware of the potential for heightened volatility.”
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