Section 301 Investigation on Chinese Legacy Chips Launched
The Office of the U.S. Trade Representative opened an investigation into Chinese manufacturing of legacy (or foundational) semiconductors, "including to the extent that they are incorporated as components into downstream products for critical industries like defense, automotive, medical devices, aerospace, telecommunications, and power generation and the electrical grid."
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The docket for comments will open Jan. 6 and close Feb. 5. There will be a public hearing on March 11 and 12.
The Dec. 23 announcement said there is evidence "that China seeks to dominate domestic and global markets in the semiconductor industry and undertakes extensive anticompetitive and non-market means, including setting and pursuing market share targets, to achieve indigenization and self-sufficiency. China’s acts, policies, and practices appear to have and to threaten detrimental impacts on the United States and other economies, undermining the competitiveness of American industry and workers, critical U.S. supply chains, and U.S. economic security."
The notice elaborated on the anticompetitive methods, saying there is evidence there are Communist Party directives and control for both state-owned and private enterprise, regulatory discrimination against foreign firms as well as market access restrictions, "wage-suppressing labor practices; massive and persistent state financial support of industry, including government guidance funds; and forced technology transfer, including state-directed cyber intrusions and cybertheft of intellectual property."
China has nearly doubled its global share of foundational logic semiconductor production capacity in the last six years, and, based on announced new fabrication plants, China is expected to make half the world's capacity of this kind of chip by 2029, the notice said.
"Evidence further suggests that the PRC’s nonmarket-oriented expansion of capacity is already discouraging investment by market-oriented actors," the notice said. The U.S. is seeking to increase domestic chipmaking with government support.
In a news release accompanying the notice, U.S. Trade Representative Katherine Tai said, "This investigation underscores the Biden-Harris Administration’s commitment to standing up for American workers and businesses, increasing the resilience of critical supply chains, and supporting the unparalleled investment being made in this industry."
The investigation was opened a few weeks after the Bureau of Industry and Security issued a report on how many critical industries rely on Chinese legacy chips. That report found 44% of companies do not know where their chips come from, but for the 38% that did know their products included Chinese legacy chips, more than two-thirds of their products contained Chinese chips. "However, these legacy chips represent a limited share of the total number of chips used in those products," BIS said.
Derek Scissors, a senior fellow with the American Enterprise Institute, said in response to e-mailed questions from International Trade Today: "The BIS report, and the Biden administration’s work on supply chains in general, is embarrassing. Not that Trump was any better, but the Biden administration is now trying to rectify four years of inaction with four weeks of pretense.
"We’re going to get flooded with low-end, highly subsidized Chinese chips by 2027. [Commerce Secretary Gina] Raimondo acknowledged this in public with me in summer 2023. She certainly knew about it before then. Yet they launch an investigation now, when they’re gone in a month. And BIS is unhappy about the lack of knowledge of semiconductor supply chains when they had four years to tell companies to report.
"The appropriate remedy by early 2026 will be industry-specific quotas. To prepare for that, the appropriate action for at least two years has been to document Chinese subsidy, production, and export patterns. Not on your way out the door."