US, EU Express Concerns Over China’s Efforts to Dominate Legacy Semiconductor Market

An employee makes a chip at a factory of Jiejie Semiconductor Company in Nantong, in eastern China's Jiangsu province on March 17, 2021. STR/AFP via Getty Images

The United States and the European Union are working together to address national security concerns associated with China’s efforts to dominate the global market for legacy semiconductors using “non-market” policies and practices.

“We know that based on China’s own reporting, about 60 percent of all new ‘legacy’ chips coming to the market in the next handful of years will be produced by China,” Commerce Secretary Gina Raimondo said at a press conference in Leuven, Belgium, on April 5.

“And we know there is a massive subsidization of that industry on behalf of the Chinese government which could lead to huge market distortion, and so that’s why we’re focused on it.”

Ms. Raimondo was in Leuven for a two-day meeting of the EU–U.S. Trade and Technology Council, where she joined Secretary of State Antony Blinken and U.S. Trade Representative Katherine Tai. The U.S. officials met with European Commission Executive Vice Presidents Margrethe Vestager and Valdis Dombrovskis.

Legacy semiconductors are defined as chips that are 28 nanometers (nm) or larger and are manufactured by mature semiconductor fabrication technologies that have been around for 10 to 20 years. On the contrary, the most advanced semiconductors, which can be as small as 3 nm to 10 nm in size, are made with cutting-edge equipment and technologies.

Older-generation semiconductors are still widely used, including in automobiles, consumer electronics, household appliances, and medical devices.

“We know China is extremely focused on these more mature chips,” Ms. Raimondo said, adding that legacy semiconductors “are like the workhorse semiconductor chips.”

Supply Chain Survey

In December 2023, the Commerce Department announced that it was starting a semiconductor supply chain survey under the Defense Production Act. The survey aims to find out how U.S. companies in the supply chains of critical U.S. industries are procuring legacy chips in order to “reduce national security risks” posed by China.

In announcing the survey, the Commerce Department noted that China has provided about $150 billion in subsidies to boost its domestic semiconductor industry in the past 10 years, which “is likely to drive below market pricing for legacy semiconductors and create an unlevel global playing field for US and other foreign competitors.”

“It’s compulsory,” Ms. Raimondo said about the survey. “We’re trying to collect data in the market to find evidence of any kind of market distortion. And the Europeans have also launched their own version of a similar survey, and we plan to share that data.”

Ms. Vestager said the EU version of the survey is voluntary.

“The U.S. is conveying a survey that is mandatory. We have a voluntary one. We will compare notes in order to take measures forward to make our supply chains resilient,” Ms. Vestager said at the press conference.

“And we have been coordinating from the very first day on how to avoid a subsidy race, make the best possible use of the incentives available for both the U.S. and Europe to increase our global footprint when it comes to semiconductors.”

A joint EU–U.S. statement published on April 5 says the two sides “share concerns about non-market economic policies and practices that may lead to distortionary effects or excessive dependencies” for legacy semiconductors.

“We intend to, as appropriate, continue to collect and share non-confidential information and market intelligence about non-market policies and practices, commit to consult each other on planned actions, and may develop joint or cooperative measures to address distortionary effects on the global supply chain for legacy semiconductors,” the statement reads.

Imposing tariffs on imports containing Chinese legacy chips can be complicated, according to an analysis published by the Center for Strategic and International Studies on April 5.

“It is not difficult to envision the complexities that would arise if the United States were to implement a tariff on inbound items containing Chinese chips—for example, affecting a Korean vehicle with chips produced in partner countries and also in China,” the analysis reads.

“Furthermore, a significant U.S. tariff increase could push Chinese legacy chips into other foreign markets, including allied economies, undercutting their own attempts to bolster domestic chip supplies.”

In January, Reps. Mike Gallagher (R-Wis.) and Raja Krishnamoorthi (D-Ill.), the top Republican and Democrat in the House Select Committee on the Chinese Communist Party, sent a letter to Ms. Raimondo regarding concerns about Chinese legacy semiconductors.

One of the questions they raised was whether the United States has the authority to establish “component tariffs,” meaning to slap tariffs on Chinese legacy chips rather than the finished products.