The Chinese-owned Canyon Bridge Fund has sought to take over Oregon-based Lattice Semiconductor Corp.
The U.S. Treasury Department, acting under Trump's orders, said Wednesday it is prohibiting the deal. It says the president determined that it would put national security at risk and that negotiations would not reduce that risk.
"The national security risk posed by the transaction relates to, among other things, the potential transfer of intellectual property to the foreign acquirer...the importance of semiconductor supply chain integrity to the U.S. government, and the use of Lattice products by the U.S. government."
Trump acted after both Lattice and Canyon Bridge lobbied the administration hard to allow the deal to go thorough.
China has not yet reacted to the Treasury's announcement. Trump has vowed to crack down on what he says are unfair Chinese trade practices, including alleged intellectual property theft.
The administration's perception that China is failing to put enough pressure on North Korea to end its nuclear program has also put a strain in ties between Washington and Beijing.