In a move that has the potential to dramatically escalate the already fractious trade and technology war between the two nations, US administration is weighing the option of placing export restrictions on China’s Semiconductor Manufacturing International Corp. (SMIC) by adding in to the Commerce Department entity list that effectively bans trade with American firms, The Wall Street Journal reported.

SMIC is China’s largest contract chip manufacturer and could jeopardise China’s long-standing ambitions to become self-reliant on critical technologies.

The proposed punitive action is on the lines of recent U.S measures against Chinese Telecom behemoth Huawei Technologies Co.

The Trump administration has often used the entity list to target Chinese industries, from telecoms equipment giants Huawei Technologies and ZTE over sanction violations, to surveillance camera maker Hikvision over suppression of China's Uighur minority.

The U.S recently blacklisted 24 Chinese companies and targeted individuals it said were part of construction and military actions in the South China Sea,

According to the WSJ report, U.S administration is of the view that SMIC is deeply embedded in military projects and might be helping China’s defense infrastructure.

A recent reasearch report by US defence contractor SOS International said that SMIC worked with one of China’s largest defence companies, and that university researchers associated with the Chinese military were designing projects to use SMIC technology. It might be “impossible” for the researchers’ efforts to use chips made anywhere else, SOS added.

SMIC has rejected the allegations that it is connected to Chinese defence establishment. It maintains that it offers chips and services “solely” for civilian uses, and that it had “no relationship with the Chinese military.”