The Biden administration, facing pushback to its chip crackdown on China, has told allies that it’s considering using the most severe trade restrictions available if companies such as Tokyo Electron Ltd. and ASML Holding NV continue giving the country access to advanced semiconductor technology.

Seeking leverage with allies, the US is mulling whether to impose a measure called the foreign direct product rule, or FDPR, said people familiar with recent discussions. The rule lets the country impose controls on foreign-made products that use even the tiniest amount of American technology.

Such a step — seen by allies as draconian — would be used to clamp down on business in China by Japan’s Tokyo Electron and the Netherlands’ ASML, which make chipmaking machinery that’s vital to the industry. The US is presenting the idea to officials in Tokyo and the Hague as an increasingly likely outcome if the countries don’t tighten their own China measures, according to the people, who asked not to be identified because the deliberations are private.

Shares in Tokyo Electron fell 7.5%, leading a drop in Japan’s Nikkei 225 Stock Average. Fellow chip gear providers including Lasertec Corp. and Screen Holdings Co. also ranked among the market’s biggest decliners.

ASML shares plunged 11% in Amsterdam to €870.90 even as the company reported better-than-expected second-quarter bookings, wiping out €42.7 billion ($46.7 billion) of market value. That was the biggest decline since March 2020.

Shares of Applied Materials Inc., Lam Research Corp. and KLA Corp. — the three biggest American makers of chip equipment — also tumbled on Wednesday. Applied Materials, the largest of the three, fell as much as 7.8% in its worst intraday decline since November.

The administration is in a tenuous position. US companies feel that restrictions on exports to China have unfairly punished them and are pushing for changes. Allies, meanwhile, see little reason to alter their policies when the US presidential election is just a few months away.

The goal is to persuade allies, who have already restricted some shipments of key equipment, to limit their companies’ ability to service and repair restricted gear that’s already in China — which US firms are barred from doing. The US is also weighing additional sanctions on specific Chinese chip companies, Bloomberg reported earlier.

Read More: Why World Powers Are Sparring Over Computer Chips

A representative for ASML declined to comment on the discussions, which have involved the National Security Council and the US Commerce Department’s Bureau of Industry and Security. A Tokyo Electron spokeswoman said the company wasn’t in a position to comment on “geopolitical issues.”

A spokesperson for the NSC, which advises the president on security matters, said the characterization of the meetings “does not reflect the discussions we are having with our partners and allies.” A representative for BIS didn’t have an immediate comment.

Chinese Foreign Ministry spokesman Lin Jian said Wednesday at a regular press briefing in Beijing that the US “politicized trade and the concept of national security.”

Lin also said “relevant countries” should “firmly resist coercion and jointly uphold a fair and open international trade order to protect their own long-term interests.”

The prospect of stricter trade rules would suggest that attempts to form a unified front against China’s chip ambitions have fallen short. The US imposed sweeping restrictions on the sale of advanced chips and manufacturing gear to China in October 2022 — and tightened those measures one year later — as part of a campaign to prevent Beijing from gaining cutting-edge technology that could boost its military.

Those rules have had a far-reaching impact. They’ve taken a quantifiable toll on Chinese companies such as Huawei Technologies Co. and Semiconductor Manufacturing International Corp., making it harder for them to get key supplies and equipment.

But the policies have also cost American companies billions of dollars in revenue. The US chip industry argues that it has shouldered an unfairly large part of the burden, and that there needs to be more allied cooperation to prevent China from finding ways around the existing controls.

The American chip-equipment makers — Applied Materials, Lam and KLA — have been pressing their case in a series of recent meetings with US officials, according to people familiar with the situation. They have argued that current trade policies are backfiring, damaging American semiconductor companies while failing to halt Chinese progress as much as the US government hoped.

But the companies don’t want the administration to use FDPR. They fear it will provoke Japan and the Netherlands to become defiant and stop cooperating. Businesses around the world also would have greater incentive to scrub American products from their supply chains in order to avoid the new restrictions.

Government officials in Tokyo have already said they wouldn’t enforce such an effort, according to some of the people. A representative for Japan’s Ministry of Economy, Trade and Industry declined to comment, as did the Dutch foreign trade ministry. Representatives from Applied Materials, Lam and KLA also declined to comment.

An alternative step being pushed by the US chip industry would be expanding the criteria for what’s called the unverified list — a framework that requires firms to seek licenses to ship certain restricted technology. The US companies aren’t suggesting that ASML and Tokyo Electron be automatically added to the list; rather, the move would signal that they could face controls if they continue serving Chinese customers that the US has deemed a national security risk.

Even that is causing a furor. People familiar with ASML’s thinking said the policy could spark a diplomatic crisis between the Hague and Washington. Tokyo Electron, meanwhile, asked Japanese officials to preemptively push back against the plan, another person said. And the company wants assurances that ASML would also be covered by any decision.

But there’s a growing clamor in the US for more action. In a bill that recently cleared the House Appropriations Committee, lawmakers directed the Bureau of Industry and Security to take up the unverified list idea. “The committee is concerned by reports that foreign entities in allied nations continue to take advantage of US export controls and US efforts to counter malign acquisition of advanced technology,” the proposal reads.

That allegation — that foreign businesses have taken advantage of US rules — is exactly the complaint that Lam, KLA and Applied Materials have put before officials at BIS and the NSC. They argue that Chinese chipmakers have been getting around the need for US machinery by relying on equipment and engineers from other countries, according to people familiar with the meetings.

Case in point, the companies say, is Yangtze Memory Technologies Co., China’s most advanced maker of memory chips. YMTC was blacklisted by the US in 2022 after intense lobbying from American memory-chip maker Micron Technology Inc. The Chinese company felt an immediate blow and was forced to lay off 10% of its workforce within two months of the controls taking effect.

But the chipmaker is still making progress on advancing its technology, the US companies say. Huawei’s latest flagship smartphone uses YMTC chips, Bloomberg has reported, in a step toward a fully Chinese supply chain.

Lam, KLA and Applied Materials are hoping that a handful of independent reports will help bolster their case. A Barclays Plc note in November said that export controls “seem to be fighting a losing battle, at least for now.”

And then in April, an analysis from the Federal Reserve Bank of New York found that US export controls cost affected American suppliers a total of $130 billion in market capitalization.

The inability of suppliers to find alternative customers may “harm the very same firms whose technology US export controls are trying to protect,” the report said.