The Biden administration has initiated a major trade investigation targeting Chinese-made legacy semiconductors, which are integral to everyday products from automobiles to household appliances. This action, announced on December 23, 2024, under Section 301 of the Trade Act of 1974, could pave the way for increased tariffs on these chips, aligning with longstanding concerns over China's growing dominance in the semiconductor market.
With less than a month before the transition to President-elect Donald Trump, the investigation is being positioned as both an economic safeguard and part of a broader strategy to mitigate national security risks linked to reliance on Chinese technology. The legacy semiconductors, which utilize older manufacturing processes, do not represent the advanced chips used for sophisticated applications but still play a pivotal role across various industries.
U.S. Trade Representative Katherine Tai underscored the motivation behind the investigation, asserting, "This is enabling its companies to rapidly expand capacity and to offer artificially lower priced chips..." This statement reflects the administration's belief in the necessity of protecting American manufacturers from what they view as unfair competition bolstered by state support for Chinese firms.
Further compounding these concerns, U.S. Secretary of Commerce Gina Raimondo revealed alarming statistics pointing to the level of integration of Chinese legacy chips in the U.S. market. She stated, "Our research shows two-thirds of U.S. products using chips had Chinese legacy chips..." This highlights the potential vulnerabilities within the American supply chain.
The investigation aims to assess how these chips are incorporated within downstream components and products, especially those used for defense and automotive applications—areas deemed sensitive by the U.S. government. By increasing scrutiny of Chinese practices, the White House intends to highlight the risks associated with this heavy reliance on foreign semiconductor supply.
This move follows the Biden administration's broader strategy of raising tariffs on various Chinese imports amid rising trade tensions. Starting January 1, 2025, Biden's administration plans to enforce a 50% tariff on Chinese semiconductors. Yet, these efforts have been characterized by their immediacy and urgency, as Amending regulations and import duties could take months or years to implement fully.
The new probe will also open the floor for public comments beginning January 6, 2025, with plans for hearings on March 11-12, 2025. This engagement could see input from industry stakeholders, adding layers of complexity to the investigation's outcomes as stakeholders voice their concerns about tariffs, supply chain disruptions, and the impact on innovation.
While the investigation has been framed as protective, it also suggests future confrontational strategies with China could be inevitable. Trump’s incoming administration will be tasked with completing the probe—a challenge not only psychologically as it picks up where the Biden administration left off but also strategically, as tariffs on Chinese imports could reach as high as 60% based on Trump's previous assertions.
The investigation's ramifications could be significant. Should the U.S. decide to impose new tariffs on legacy chips, the prices of everyday electronics—computers, smartphones, and automobiles—may rise. Consequently, this could catalyze inflationary pressures at a time when the U.S. economy is already facing various challenges and could hamstring efforts to return to economic stability after the volatility fueled by the COVID-19 pandemic.
Overall, this latest chapter of U.S.-China trade relations stresses the intensifying scrutiny the semiconductor sector is currently under. The Biden administration, and now potentially the Trump administration, are sending clear signals of their priorities: national security and economic independence.
Looking forward, the results of this investigation will likely influence the future of global technology and trade relations as countries navigate the complex interplay of competition, security, and economic cooperation. With U.S. policymakers increasingly viewing Chinese technology initiatives as threats, the stakes could not be higher for both American consumers and Chinese manufacturers.
