biden administration launches probe into china's chip investments
Washington, D.C., Tuesday, 17 December 2024.
The Biden administration is investigating China’s investments in traditional chip production. The focus is on potential impacts on global chip prices and America’s growing dependency on China. This move highlights trade and national security concerns. The investigation could lead to tariffs or import bans on certain Chinese chips and products containing them. Concerns revolve around China’s subsidized production potentially undercutting U.S. factories, leading to increased reliance on Chinese semiconductors. As the U.S. seeks to bolster domestic chip production, this investigation marks a significant step in addressing supply chain vulnerabilities and protecting national security interests. The outcome could reshape semiconductor trade dynamics between the two countries.
Market implications and timing
The investigation announcement has significant market implications for semiconductor stocks. Commerce Secretary Gina Raimondo indicated on December 7 that Chinese firms are flooding global markets with subsidized chips at prices 30-50% below U.S. manufacturers [1]. This pricing pressure threatens U.S. semiconductor investments, as companies require government subsidies exceeding 40% of capital costs to remain competitive [1]. The investigation is expected to launch within weeks but could take at least six months to reach conclusions [1].
Strategic industry context
China’s expanding role in traditional chip production poses strategic concerns. According to government data, China is projected to account for nearly half of new global capacity for conventional chips in the next 3-5 years [1]. While the U.S. has previously restricted access to advanced semiconductor technology [1], this investigation marks the first major scrutiny of China’s growing dominance in older-generation chips, which remain crucial for automobiles, smartphones, and military equipment [1].
Trade policy considerations
The Biden administration is weighing two potential legal frameworks for the investigation. One option is Section 232 of the Trade Expansion Act focusing on national security, while the other is Section 301 of the 1974 Trade Act addressing unfair trade practices [1]. This follows the administration’s broader strategy of maintaining existing tariffs while implementing new export controls on Chinese firms [4]. The investigation could potentially result in targeted component tariffs specifically on Chinese chips within imported products [1].
Economic security concerns
Current data reveals significant U.S. exposure to Chinese semiconductors, with approximately two-thirds of American-made electronic products containing Chinese chips [1]. This dependency raises both economic and security concerns, particularly as China implements export controls on critical materials like gallium and germanium [5]. The investigation aligns with ongoing efforts to strengthen domestic semiconductor production, supported by initiatives like the CHIPS Act [4][5].