The U.S. is preparing to restrict Chinese companies from accessing to U.S. cloud-computing services from Amazon.com, Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT). 

What Happened: If the new rule is implemented, it would mandate U.S. cloud-service providers to obtain permission from the government before offering cloud-computing services that utilize advanced artificial intelligence chips to customers in China, according to the Wall Street Journal.

In cloud computing, Microsoft Azure and Amazon Web Services stand as the dominant forces worldwide. They also face competition in China from the likes of Alibaba Group Holding Ltd. (NYSE:BABA), utilizing partnerships with local data center providers affiliated with the government.

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Just days before Treasury Secretary Janet Yellen's visit to China, Beijing made an announcement on Monday regarding export restrictions on metals that are crucial for advanced chip manufacturing. Yellen's visit follows closely on the heels of Secretary of State Antony Blinken's meeting with China's President Xi Jinping in Beijing.

Why It Matters: The proposed restriction is viewed as an effort to address a notable loophole. Experts in national security have raised concerns that Chinese A.I. companies may have been able to evade existing export control regulations by leveraging cloud services. 

Such services enable customers to access robust computing capabilities without needing controlled-list equipment, including chips such as NVIDIA Corp's (NASDAQ:NVDA) A100 chips.

The Biden administration intends to strengthen export controls, initially announced in October, to impose limitations on the sales of specific artificial intelligence chips to China. 

As part of the forthcoming proposal by the Commerce Department, anticipated to be released in July, the U.S. aims to revise export controls to increase the difficulty of selling specific chips to China without obtaining a license.

The ban on cloud services would mark the most recent development in a series of reciprocal measures taken by Washington and Beijing concerning semiconductors and other cutting-edge technologies.

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