The Biden administration said US tech firms that receive federal funding would be barred from building "advanced technology" factories in China for ten years.
The guidelines were uncovered as part of a $50bn plan to build up the local semiconductor industry. The business groups pushed the government to gain their support to reduce reliance on China. Business groups have faced a global microchip shortage which slowed production.
The fear of losing the technology edge to China, US President Joe Biden signed a law committing $280bn to scientific research and high-tech manufacturing in August this year. The investments contain tax breaks for firms that build computer chip manufacturing plants in the US.
The US currently produces about 10% of the global supply of semiconductors, vital to everything from mobile phones to cars, down from nearly 40% in 1990. The Chinese Embassy in Washington called the semiconductor bill reminiscent of a "Cold war Mentality," while opposing it. Some US chip-making companies are already experiencing the impact of Washington's crackdown on selling US technology to China. US officials told AMD and Nvidia to stop the sale of AI chips to China, earlier this month.