The Biden administration is ramping up efforts to counter China’s growing influence in the semiconductor market by launching an investigation into China’s practices in legacy chip manufacturing. This scrutiny follows allegations that China employs anti-competitive tactics, including extensive state support, cyber intrusions, forced technology transfers, and illegally low pricing of chips—often 30% to 50% below production costs.

The U.S. Trade Representative (USTR) is particularly concerned that China’s strategy, aimed at achieving self-sufficiency and controlling semiconductor markets, may pose risks to American industries and national security. The USTR’s statement highlights that China is actively seeking to gain market dominance through means that may violate trade agreements, including extensive support for domestic companies.

Legacy semiconductors are crucial components in a variety of sectors, including automotive, defense, and healthcare. John Neuffer, the CEO of the Semiconductor Industry Association (SIA), has urged USTR to proceed carefully while also fostering a robust domestic semiconductor ecosystem to increase U.S. competitiveness in global markets.

China is expected to dominate more than 60% of global capacity for legacy chips by the end of the decade, substantially aided by its "Made in China 2025" initiative, which includes extensive subsidies and strategic market targets. This expansion has resulted in massive growth in China’s production capacity, nearly doubling within a six-year period.

The U.S. government argues that China’s pricing strategies and industry consolidation threaten to undermine the competitiveness of American businesses and disrupt critical supply chains. USTR Katherine Tai has warned that these practices risk impacting not only those in the semiconductor sector but also other components of the U.S. economy.

As the investigation unfolds over the coming year, it will delve into the implications of China’s semiconductor policies for a variety of American industries while also assessing vulnerabilities across critical sectors. A public hearing is slated for March 2025, inviting input from industry stakeholders to strategize on promoting domestically produced chips.

This investigation is set against a backdrop of increasing U.S.-China tensions, with both nations investing heavily in technological advancements. The potential fallout from these efforts could significantly alter the landscape for American businesses and their supply chains, especially for those reliant on low-cost components sourced from China.

As Washington strives for technological leadership and seeks to bolster its critical supply chains, the outcome of this USTR investigation could have lasting implications for the semiconductor industry and shape the future dynamics of global trade.

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