While the plan is not the only option on the table, it would make good on President Donald Trump's threat earlier in October to bar "critical software" exports to China by restricting global shipments of items that contain US software or were produced using US software.
On October 10, Trump said in a social media post that he would impose additional tariffs of 100 per cent on China's US-bound shipments, along with new export controls on "any and all critical software" by November 1 without further details. To be sure, the measure, details of which are being reported for the first time, may not move forward, the sources said.
But the fact that such controls are being considered shows the Trump administration is weighing a dramatic escalation of its showdown with China, even as some within the US government favour a gentler approach, according to two of the sources.
"Clearly the US is looking for points of leverage and we are really good at software, so it's not so surprising that this administration has considered it," said Emily Kilcrease, a former trade official now at the Center for a New American Security.
However, it would be extraordinarily difficult to implement and there would be blowback for US industry, she said.
"You would hope they are only putting threats on the table that they would carry out and stick with."
US stock indexes briefly extended losses on the news, with the S&P 500 down 0.8 per cent and the Nasdaq 1.3 per cent lower before paring their losses.
The White House declined to comment. The Commerce Department, which oversees export controls, did not respond to requests for comment.
A spokesperson for the Chinese embassy did not comment on the specific US measures under consideration but said China opposed the US "imposing unilateral long-arm jurisdiction measures" and vowed to "take resolute measures to protect its legitimate rights and interests" if the US proceeds down what it views as a wrong path.
Administration officials could announce the measure to put pressure on China but stop short of implementing it, one of the sources said. Narrower policy proposals are also being discussed, two of the people said.
"Everything imaginable is made with US software," one of the sources said, highlighting the broad scope of the proposed action. The sources declined to be named because the matter was not public.
The move could disrupt global trade with China, especially for technology products, and could come at a cost to the US economy if fully implemented.
In his post, Trump also accused China of considering "large scale Export Controls on virtually every product" it makes and on some foreign-made items, which he said would affect all countries, also starting November 1. Any such move would constitute "a moral disgrace," he added.
But questions have swirled about what Trump meant in his response by "critical software" controls.
While Trump has slapped a series of tariffs on China since taking office in January, he has wavered in his use of export restrictions against Beijing, first imposing strict new curbs on shipments of Nvidia's and AMD's AI chips before later removing them.
Chinese imports currently face US tariffs around 55 per cent, which could shoot up to 155 per cent if Trump follows through on his threatened tariff hike. But Trump appeared to soften his posture on Beijing following the threats, posting on October 12 that: "The USA. wants to help China, not hurt it!!!"
US Treasury Secretary Scott Bessent on Friday said he expected to meet with Chinese Vice Premier He Lifeng in Malaysia this week, ahead of the meeting between Trump and Xi in South Korea later in October.
