The U.S. government is banning the export of several high-end chips used in the artificial intelligence (AI) sector that is made by Nvidia (NVDA  ) and AMD (AMD  ). Both stocks were modestly lower following the news.

The bans are also expected to slow the development of China's AI by a few years which has major implications for growth and defense. It also continues a series of increasing tensions between the two countries over various issues including trade, Taiwan, Russia, and geopolitical grappling. These tensions have spilled over into many areas including tariffs, defense funding, and now, limits on key exports. It's also an indication that AI and these chips are a vital part of U.S. defense strategy.

As a result, the U.S. government is banning the export of Nvidia's graphic processing unit (GPU) chips, including the A100 and H100 to China and Russia. Its DGX, an AI server chip, was also included on the ban list. For AMD, the U.S. government is banning its MI250 Accelerator AI chip from being exported to China.

China's Foreign Ministry responded by accusing the U.S. of a "sci-tech hegemony" that was violating free trade agreements with these restrictions. According to experts, the decision will have serious implications as China's AI sector is reliant on Nvidia and AMD chips. In response, Chinese companies are expected to increase R&D to manufacture their own AI chips.

The U.S. has stressed that this decision didn't come easy and it was due to concerns about China's trade practices and respect for intellectual property. According to U.S. Trade Representative Katherine Tai, China has gained a dominant advantage in the steel and solar industries due to its 'unfair' policies and is planning on the same in semiconductors.

It also followed a decision by the U.S. Department of Commerce to ban the export to China of electronic computer-aided design (ECAD) software that is used to design certain chips. It also comes after the bipartisan, CHIPS and Science Act to boost domestic semiconductor production and scientific research to enhance U.S. competitiveness. It amounts to $54 billion of subsidies to U.S.-based chip makers.