President Biden has initiated a new trade investigation into legacy Chinese processors

The Biden administration on Monday disclosed a last-minute trade investigation into Chinese-made “legacy” semiconductors. This investigation could result in the imposition of additional U.S. tariffs on chips from China, which are used to power a variety of commonplace items, including automobiles, washing machines, and telecommunications equipment.

Biden administration officials have announced that the “Section 301” investigation, which was initiated just four weeks prior to President-elect Donald Trump’s inauguration on January 20, will be transferred to his administration in January for completion.

The endeavor could provide Trump with a convenient avenue to commence the imposition of some of the substantial, 60% tariffs on Chinese imports that he has recently threatened.

As of January 1, the United States has implemented a 50% tariff on Chinese semiconductors, which was implemented by the departing President, Joe Biden. Additionally, his administration has implemented restrictions on the export of advanced AI and memory processors, as well as chipmaking equipment, to China. More recently, tariffs have been raised by 50% on Chinese solar wafers and polysilicon.

The new investigation, which will be conducted by the U.S. Trade Representative’s office, is intended to safeguard American and other market-driven chip producers from China’s substantial state-driven building of domestic chip supply.

According to Katherine Tai, the U.S. Trade Representative, the trade agency has discovered evidence that Beijing is pursuing global dominance in the semiconductor industry, a strategy that is comparable to its accumulation of steel, aluminum, solar panels, electric vehicles, and critical minerals.

“This is enabling its companies to rapidly expand capacity and to offer artificially lower priced chips that threaten to significantly harm and potentially eliminate their market-oriented competition,” she disclosed to reporters during a conference call.

Legacy processors are present in a diverse array of mass market applications and are manufactured using older, more efficient methods. Advanced circuits for artificial intelligence applications and sophisticated microprocessors are not included.

According to a Federal Register notice regarding the investigation, the Biden administration will commence gathering public feedback on the investigation on January 6 and has scheduled a public hearing for March 11-12. Jamieson Greer, a trade litigator and former USTR chief during Trump’s first administration, is Trump’s nominee to lead USTR. It is uncertain whether the U.S. Senate will grant his confirmation by that time.

The inquiry is being conducted under Section 301 of the Trade Act of 1974, the same unfair trade practices statute that Trump invoked to implement tariffs of up to 25% on approximately $370 billion in Chinese imports in 2018 and 2019, thereby inciting a nearly three-year trade war with Beijing.
Should Trump decide to pursue the investigation, it must be finalized within one year of its commencement.

The investigation of downstream goods

In addition to evaluating the impact of the imported processors themselves, a Biden administration official stated that the investigation would also investigate their integration into downstream components and end-use goods for critical industries, such as defense, automotive products, and medical devices.

This initiative will also concentrate on the production of silicon carbide substrates and wafers in China for semiconductor fabrication.

U.S. Commerce Secretary Gina Raimondo stated that her department’s research indicates that two-thirds of U.S. products utilizing chips contained Chinese legacy chips, and half of U.S. companies were unaware of the origin of their chips, including some in the defense industry. Raimondo described these findings as “fairly alarming.”

Since the COVID-19 pandemic disrupted the supply of semiconductors and temporarily halted production of automobiles and medical equipment, the United States has endeavored to establish its own semiconductor supply chain by providing $52.7 billion in new subsidies for chip production, research, and workforce development.

But Raimondo asserted that China’s intentions to construct over 60% of the world’s new legacy semiconductor capacity within the next decade were discouraging investment in other regions and constituted unfair competition.

The practice “undercuts our companies and makes the U.S. dependent on China for the chips that we use every day in so many things,” she informed the media.
Tariffs on China will be one of the few areas of continuity between the administrations of Biden and Trump, despite an acrimonious presidential campaign.

In order to prevent Chinese-made electric vehicles from entering the U.S. market, Biden maintained all of the tariffs on Chinese imports that Trump had implemented, and he even increased them by 100%.