**Many US Firms Ignorant of Chip Origins: Worries Intensify Over China’s Legacy Semiconductor Supremacy**
The semiconductor sector has become a crucial aspect of worldwide economic and geopolitical rivalry, with legacy chips—older, commonly used semiconductors—rising as an essential arena. A recent finding has underscored a troubling trend: almost half of US firms do not know where the chips they source originate, including those utilized in sensitive sectors such as defense and healthcare. This lack of clarity has triggered concerns, particularly as China vigorously advances its dominance in the legacy chip arena.
### The US Reaction: A New Inquiry into China’s Semiconductor Activities
Under President Joe Biden’s leadership, the US Trade Representative (USTR) has initiated a thorough examination of China’s activities in the legacy chip sector. This inquiry, revealed in December 2024, seeks to unveil the scope of China’s influence and its possible repercussions on US national security and economic stability. The investigation will analyze China’s strategies, including state-sponsored subsidies, mandatory technology transfers, and purportedly unfair market practices that have enabled Chinese firms to provide chips at significantly lower prices than their US rivals.
Commerce Secretary Gina Raimondo voiced concern over revelations that two-thirds of US products containing chips had Chinese legacy semiconductors. Alarmingly, half of US companies, including some within the defense field, were unaware of the provenance of their chips. This lack of oversight poses threats not only to supply chain safety but also to the wider US economy.
### The Importance of Legacy Chips
While legacy chips may lack the advanced capabilities of next-generation semiconductors employed in artificial intelligence, they are crucial for numerous applications. These encompass automotive electronics, medical instruments, telecommunications, military gear, and essential infrastructure like power grids. Thus, they serve as the foundation of contemporary technology.
China’s strategic ambition to dominate this sector is evident in its “Made in China 2025” plan, which outlines bold goals for boosting its global semiconductor production share. By 2029, China is anticipated to command nearly half of the global legacy chip manufacturing capacity. Such dominance could provide China substantial leverage over international supply chains, potentially enabling it to disrupt industries or enact economic sanctions.
### Claims of Unfair Practices
The USTR’s examination will investigate a variety of purported unfair practices by China, including:
– **Government Control and Subsidies**: The Chinese government is alleged to provide extensive financial backing to its semiconductor sector, allowing firms to undercut rivals with artificially low pricing.
– **Mandatory Technology Transfers**: Via state mandates and cyber espionage, China is accused of obtaining crucial intellectual property from foreign firms.
– **Market Access Challenges**: International companies encounter obstacles in the Chinese market, whereas Chinese enterprises receive preferential treatment both domestically and internationally.
– **Labor Conditions**: Wage suppression and other labor policies are thought to give Chinese companies a cost edge.
These practices have reportedly enabled Chinese suppliers to offer chips at prices 30-50% lower than those of US manufacturers, occasionally even below their production expenses. Such pricing tactics threaten to eliminate competitors from the market, reinforcing China’s dominance.
### Consequences for US National Security and Economy
The dangers posed by China’s legacy chip supremacy extend beyond economic rivalry. A major worry is the potential for vulnerabilities in supply chains. Should the US become excessively dependent on Chinese chips, it could face interruptions in critical sectors during geopolitical tensions or trade disagreements. This reliance could also hinder efforts to establish a robust domestic semiconductor industry, a primary objective of the Biden administration’s CHIPS Act.
Additionally, China’s grip on legacy chips may alter the landscape of the “chip war,” granting it the capacity to impose sanctions or other economic actions against the US. Jeremy Chang, a technology policy specialist, cautioned that such a scenario could yield significant consequences for the US economy and its technological preeminence.
### Upcoming Actions: Public Hearings and Collaboration with Industry
The USTR’s inquiry will include discussions with the Chinese government, public hearings set for March 2025, and feedback from industry participants. The Biden administration has also put out a Request for Information (RFI) to collect insights from US businesses on enhancing domestic chip production.
The Semiconductor Industry Association (SIA) has voiced support for the inquiry, underscoring the necessity for a thoughtful and cooperative strategy. SIA President John Neuffer reiterated the significance of safeguarding America’s semiconductor supply chain resilience and sustaining its leadership on the global stage.
### Looking Forward
The results of the USTR’s inquiry could significantly influence the trajectory of US-China trade relations and the global semiconductor landscape. While the Biden administration has launched the investigation, its outcomes and subsequent measures will likely be addressed by the next administration. Former President Donald Trump, who has aligned with Biden on strict trade policies toward China, may utilize the inquiry’s findings to rationalize imposing tariffs or other interventions should he return to office.
As the US confronts the challenges posed by China’s legacy chip dominance, the demand for increased transparency and investment in domestic production has never been more urgent.
