The Biden administration has launched a significant investigation targeting the Chinese semiconductor industry, focusing on legacy chips, which are integral to numerous everyday products from automobiles to household appliances. This probe by the Office of the U.S. Trade Representative (USTR) is primarily aimed at examining China's alleged unfair trade practices as the U.S. seeks to fortify its semiconductor supply chain.
Launched on January 18, 2021, the probe may impose increased tariffs on Chinese chips just weeks before President-elect Donald Trump takes office. With Trump's administration taking over the investigation, it sets the stage for potential bipartisan continuity on trade issues, especially concerning tariffs on Chinese imports.
Legacy semiconductors, using older manufacturing processes, are ubiquitous and found not just in consumer electronics but also in defense and automotive sectors. U.S. Commerce Secretary Gina Raimondo expressed alarm over findings indicating two-thirds of U.S. products using chips are linked to China, stating, "I was fairly alarmed... two-thirds of U.S. products using chips had Chinese legacy chips..." This oversight highlights national security risks as even some defense-related companies were unaware of where their chips originated.
Further emphasizing the challenge, Raimondo noted China's ambitious plans to build over 60% of the world’s new legacy chip capacity over the next decade, claiming it threatens U.S. investments and competition. The investigation aims to examine the overall impact of these imported chips, especially their role within downstream products across various industries, including telecommunications, healthcare, and automotive.
U.S. Trade Representative Katherine Tai remarked on the growing concerns surrounding China’s strategy, asserting, "This is enabling its companies to rapidly expand capacity and to offer artificially lower priced chips..." These statements resonate with broader apprehensions about being overly reliant on Chinese technology.
The need for more stringent trade policies has gained urgency after the COVID-19 pandemic disrupted the global semiconductor supply chain, halting production lines for many sectors, including pharmaceuticals and automotive. To mitigate these risks, the Biden administration has dedicated $52.7 billion to boost domestic chip production, research, and workforce development.
While the Biden administration's tariffs on Chinese semiconductors start at 50% on January 1, they also plan to tighten export restrictions on advanced AI and memory chips headed to China. The Section 301 probe, referencing the Trade Act of 1974, allows the USTR to investigate unfair trade practices. This same framework was employed during the trade war initiated by the Trump administration, which imposed up to 25% tariffs on approximately $370 billion worth of Chinese imports.
Anticipation surrounds the outcome of this investigation as Trump’s administration prepares to inherit the inquiry. The timing is notable; Trump has previously indicated intentions to impose tariffs as high as 60% on Chinese goods, and the results of this investigation could provide him with the groundwork needed to pursue such measures vigorously.
Public comments on the investigation are set to begin on January 6, with hearings scheduled for March 11-12, allowing industry stakeholders to voice their concerns. This deliberative process is seen as pivotal for the U.S. to understand the extent to which Chinese companies have penetrated the market and how their practices align with international trading standards.
Despite the contentious nature of U.S.-China trade relations, the continuation of tariffs across different administrations reflects a common consensus on the importance of protecting American industry and maintaining national security. The probe not only aims to safeguard U.S. companies from perceived unfair competition but also strives to reshape the future of semiconductor manufacturing.
Overall, as the U.S. navigates its complex relationship with China, this trade investigation stands as a resourceful tool to review and possibly recalibrate U.S. policies on international trade, particularly as it relates to the semiconductor market which has become increasingly central to both economic growth and national security.
