The Philadelphia Semiconductor Index saw more than $500 billion in value wiped out from its stocks today, posting its worst single-day performance since 2020.

The fall came after a Bloomberg report said the United States government is considering introducing tighter restrictions on the sale of computer chipmaking technologies to China. Shareholders’ fears were worsened when the Republican presidential candidate Donald Trump said that Taiwan, which dominates the semiconductor manufacturing industry, should pay the U.S. for its defense. That prompted further selloffs in chip stocks, CNBC reported.

The Semiconductor Index’s poor performance had a knock-on effect on the broader S&P 500 and Nasdaq indexes. The S&P 500 slid 1.39% to close at 5,588.27, while the tech-heavy Nasdaq declined 2.77% to end the day at below 18,000 for the first time since July 1.

In recent years, the U.S. government has adopted a more protective stance on the U.S. semiconductor manufacturing industry, which it believes is of vital importance to national security, especially with regard to its rivalry with China.

On Tuesday, Bloomberg reported that the U.S. has told allied governments that it will consider implementing the most severe curbs on trade it has available if they continue selling advanced semiconductor technologies to Chinese chipmakers.

Shares of the Dutch chipmaking equipment supplier ASML Holding N.V. fell more than 13% today as it delivered its second-quarter financial results, even though it beat analysts’ targets on earnings and revenue. The company posted a net profit of 1.6 billion euros ($1.74 billion), beating Wall Street’s forecast of 1.41 billion, while its revenue came to 6.2 billion euros, ahead of the 6.04 billion target.

Many other semiconductor industry titans were impacted too. Nvidia Corp., which has risen to prominence thanks to its domination of the artificial intelligence chip industry, saw its stock fall almost 7%, losing over $200 billion in market capitalization. The U.S.-listed shares of Taiwan Semiconductor Manufacturing Co., the world’s biggest chipmaker, dropped 8%. Advanced Micro Devices Inc. and Arm Ltd. both saw their stocks fall by around 10%, while Micron Technologies Inc. fell 6% and Broadcom Inc. declined just over 8%.

On the other hand, chipmakers that are focused on expanding their U.S. operations gained, with Intel Corp.’s shares creeping up by 0.5% and GlobalFoundries Inc. surging more than 6%. Some analysts believe those companies stand to gain from the U.S.’s increasingly protective stance on domestic semiconductor manufacturing.

AMSL Chief Executive Christophe Fouquet sought to play down shareholder’s fears, noting that it has already been barred from selling its most advanced chipmaking systems to Chinese companies. As a result, Chinese firms are only able to buy its older lithography systems. They accounted for roughly 49% of its revenue derived from those systems, and they also represent around 20% of its total sales backlog, he said.

Because of the growing demand for AI chipmaking capacity, Fouquet said he is quite confident that the company would be able to sell its systems elsewhere if new restrictions mean China is unable to purchase them.

TECHnalysis Research analyst Bob O’Donnell told Reuters that investors were likely overreacting to the report and that these corrections will be short-lived, because the market fundamentals haven’t changed. “U.S. restrictions on China will likely increase somewhat, regardless of the U.S. election outcome,” he said. “But they have already been in place for a while.”

Under the leadership of President Joe Biden, the U.S. government has implemented aggressive measures to try to prevent Chinese chipmakers from accessing the most advanced chip manufacturing technologies. In October, it introduced sweeping restrictions that limit exports of cutting-edge AI processors designed by companies such as Nvidia.

Chipmakers have seen their sales to China affected by those measures. Nvidia, in its latest earnings call in April, said that China accounted for 18% of its total revenue, down from 66% one year earlier.

However, it wasn’t Biden that first began the crackdown on China’s semiconductor industry. It was the former U.S. President Trump that initiated the first sanctions back in 2019, and in an interview with Bloomberg Businessweek today, he said that if he wins the election, he will try and make Taiwan pay the U.S. for its defense. TSMC’s stock plunged immediately after that interview was posted online.

The fears stem from Taiwan’s domination of the global chipmaking industry, and analysts have previously warned that if China ever decides to try to take over the island by force, it could have a shattering effect on the global economy.

Holger Mueller of Constellation Research Inc. said today’s events highlight the roller-coaster nature of the chip market, which is characterized by enormous price swings seen in both the price of its products and the stocks of its major companies.

“The restrictions on a key market might become more severe, and a presidential candidate threatens sanctions on a key chip industry player in Taiwan — these are things that must be factored into the market,” Mueller explained. “It’s interesting to see the impact was more positive on U.S.-centric chipmakers, but overall the demand for computer chips is not going to slow down. What we saw was just a dip in the roller-coaster, and we can expect more upward momentum very soon.”

All told, the Philadelphia Semiconductor Index fell 6.8%, in what was its biggest one-day decline since the early days of the COVID-19 pandemic. However, the index remains up more than 30% in the year to date, outperforming the S&P 500’s gain of 17%, as a result of the booming AI industry.

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