US launches probe into Chinese semiconductor production

The Biden administration is set to investigate whether Beijing’s chip-manufacturing policies threaten US economic security

The US has launched a trade investigation into China’s production of legacy chips, citing concerns that the country is seeking to dominate domestic and global markets in the critical semiconductor industry. 

In a press release on Monday, Trade Representative Katherine Tai claimed that Beijing was employing extensive anticompetitive and non-market strategies, including setting and pursuing market-share targets, to achieve indigenization and self-sufficiency.

The country’s policies and practices threaten to have ‘detrimental impacts’ on the US and other economies, Tai claimed, adding that they undermine the competitiveness of American industry and workers, critical US supply chains, and its economic security.

According to the press release, the probe will focus on China’s manufacturing of foundational semiconductors, also known as legacy or mature-node semiconductors. These are older types of computer chips that are integral for cars, dishwashers, medical devices, aerospace, telecom networks, power generation, and military weaponry.

The investigation will also initially assess whether the impact of Chinese acts, policies, and practices on the production of silicon carbide substrates (or other wafers used as inputs into semiconductor fabrication) contributes to “any unreasonableness or discrimination or burden or restriction on US commerce.”

The probe comes in the final weeks of the Biden administration, meaning it will fall to the incoming Trump administration, which takes over in January. It will be conducted under Section 301 of the Trade Act of 1974, the same unfair trade practices statute that then-President Donald Trump invoked to impose tariffs of up to 25% on some $370 billion worth of Chinese imports in 2018 and 2019, triggering a nearly three-year trade war with Beijing.

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US Commerce Secretary Gina Raimondo said recent research from her department shows two-thirds of US products rely on components containing Chinese legacy chips. She also noted that half of US companies, including some in the defense industry, were unaware of their chips’ origin.

Describing the findings as “fairly alarming,” Raimondo said China’s plans to build more than 60% of the world’s new legacy chip capacity over the next decade were discouraging investment elsewhere and constituted unfair competition.

Both China and the US have in recent years been jostling for domination in key technology areas, including semiconductors. Washington has repeatedly tightened export controls to prevent Chinese firms from buying certain American components, citing risks to national security. In May, the Biden administration said it would hike tariffs on legacy semiconductors from China, starting next year.

Beijing has repeatedly slammed the export curbs, claiming they run counter to globally recognized market rules.