The move is the latest regulatory step before the Commerce Department provides more than $100 billion in federal aid aimed at boosting the U.S. chip industry in the United States and "conditionally overseas."
The move aims to push chip and semiconductor manufacturing operations in the world's largest economy to keep pace with China's technological advances.
China, for its part, restricts the export of two metals essential to the semiconductor industry to other countries.
After the recent restrictions, the Chip Support Program office, which is preparing to provide $39 billion in grants and $75 billion in loans and other loan guarantees, will prohibit companies that receive funding from significantly increasing production or expanding their manufacturing in China.
Funding will be limited to companies that want to develop their production outside the United States, and will be increased by a set of 5 percent for the development of modern chips, and 10 percent for the previous technology of 28 nanometers or older.
Gina Raimondo, Commerce Secretary, said in a statement that "the initiative to support chip manufacturing in the United States was originally agreed as an initiative to enhance U.S. national security."
The secretary explained that putting in place the guardrails is a guarantee that companies with funding from the U.S. government are working to strengthen the country's national security, while at the same time coordinating closely with allies "to strengthen global supply chains and enhance our collective security."