A war over silicon is brewing between the world’s two largest economies as the U.S. looks to isolate China from one of the most important technologies of the future. This past summer saw the passing of the CHIPS ACT, which allowed the federal government to pour billions of dollars into the semiconductor sector to “lead the world in future industries and protect national security.” The Biden administration followed up on the measures with serious export controls to prevent U.S. firms – or any global company that uses their tech – from selling chip designs, software and equipment to Beijing (it also prohibited American nationals from working with Chinese chip companies to slow their technological advances).

Backdrop: Chips are used in just about everything today, making the modern economy possible, but the bigger concerns here are those used in sensitive military technologies. The most advanced integrated circuits let nations stay far ahead of their rivals in terms of weapons systems and intelligence gathering, and more broadly, are a statement of geopolitical power. As China grows its influence, the country has been making strides towards producing its own advanced chips, and has even been surprising the U.S. with its latest military developments (remember the Chinese hypersonic missile test that went around the world in 2021?).

Until now, the U.S. has outsourced the manufacturing of its most advanced chips to Taiwan, which has become increasingly threatened by its forceful neighbor China. Taiwan Semiconductor Manufacturing Company (NYSE:TSM) and other local fabs account for 92% of the world’s advanced semiconductor manufacturing capacity, according to the Semiconductor Industry Association, and former House Speaker Nancy Pelosi even saw it necessary to meet with TSMC (TSM) executives directly during a tension-filled visit to the island last summer. The move highlighted the significance of the company to American security, and its shares are up nearly 10% since the visit. Steve Cress, Head of Quantitative Strategies at Seeking Alpha, recently identified TSM as one of the top 10 tech stocks for 2023 (see the others here).

Go deeper: The U.S. is now trying to protect the rest of the advanced chip supply chain by forging an alliance that will curtail China’s ability to produce its own domestic silicon. Talks are set to conclude today with Japan, the biggest supplier of chip wafer, metals and chemicals, as well as the Netherlands, known for its deep ultraviolet lithography machines used to carve advanced chips. Restrictions are likely to be imposed on ASML (NASDAQ:ASML), Nikon (OTCPK:NINOY) and Tokyo Electron (OTCPK:TOELY), building on earlier business rules and trading regulations, and marking the latest salvo in the semiconductor war.

Related: AMD (NASDAQ:AMD), Applied Materials (NASDAQ:AMAT), Broadcom (NASDAQ:AVGO), Intel (NASDAQ:INTC), Micron (NASDAQ:MU), Nvidia (NASDAQ:NVDA), Qualcomm (NASDAQ:QCOM) and Texas Instruments (NASDAQ:TXN).