"Chip war" Legacy chips: Chip war between the USA and China expands again

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The outgoing U.S. government has expressed concern over subsidies provided by the People's Republic of China for legacy chip production, hinting at potential countermeasures. In response, China has warned of possible disruptions to the global supply chain and signaled scrutiny of U.S. Chip Act subsidies.This version is concise and maintains the key points while improving flow and readability.

The USA wants to extend its chip war against China to older, so-called legacy chips. One day before Christmas Eve, on December 23, 2024, the current administration of President Joe Biden has launched a "Section 301" investigation that could lead to a significant escalation of punitive tariffs and trade embargoes against China's semiconductor industry.

It is to be expected that the investigation will confirm the accusations of "unfair trade practices" against China, which the Department of Commerce in Washington cites to justify the investigation. However, whether new trade barriers will actually be imposed on older chips will have to be decided by Donald Trump's new administration after he takes office on January 20, 2025.

To be continued?

Since the US launched its "chip war" against China in 2018 during Trump's first term in office, China had been denied mainly advanced semiconductors, especially AI chips, as well as equipment for their production. Now, however, the Biden administration is targeting China's legacy chip industry on its way out. Unlike in the case of AI chips, Washington is less concerned with restricting Chinese technological capabilities for the production of such chips. This could hardly be achieved anyway.

Rather, US Trade Representative Katherine Tai and her team justify their Section 301 investigation under the US Trade Act of 1974 by arguing that "evidence indicates" that China is attempting to dominate its domestic and global market for such older chips through "extensive anti-competitive, non-market means". This could result in dangerous "dependencies" on China, including in strategically important sectors of the economy, according to the argument.

It is probably pointless to analyze exactly what evidence is meant here. In Washington, high-ranking politicians, both Democrats and Republicans, agree that China's economic rise should be slowed down as much as possible in the interests of US supply chains and jobs.

Legacy chip production as a goal

The trade war with China has therefore been gradually expanded under the Trump and Biden administrations, from advanced to less advanced semiconductors, including memory chips, to lithography machines and software for chip production, and most recently also to e-cars and batteries.

We have now arrived at legacy chips, which are usually semiconductors that are manufactured using older, but also ever-evolving processes with technology of 28 nanometer nodes or more. Unlike high-performance chips for AI applications, which dominate the headlines but only make up a small part of the market, legacy chips are ubiquitous. They are used in the manufacture of cars, airplanes, Wi-Fi routers, medical devices, many weapons systems and even washing machines; in fact, just about everything that can be found in a household, a factory or even a barracks these days.

The latter point, the strategic importance of legacy chips for the production of armaments and national defense, is what the current US government is referring to with its latest move. Ever since older chips suddenly became difficult to obtain during the Covid-19 crisis because many of them were produced in China and strict coronavirus measures paralyzed global supply chains, there has been talk in US military circles of dangerous "dependencies" on China.

China warns of supply chain influence

Beijing, on the other hand, which protested on the same day as the legacy chip investigation in Washington was announced in December, calls this expansion of the chip war "protectionist". Measures against older chips from China would once again disrupt global semiconductor supply chains and also harm US companies, the Ministry of Commerce in Beijing said in its statement.

Chinese chips only have a total share of 1.3 percent of the US semiconductor market, Beijing argues. The accusations from Washington that the US wants to dominate the global market "are obviously self-contradictory and lack any basis", according to the protest from the Chinese Ministry of Commerce. In response to the accusation of "market distortion", Beijing should now consider taking a closer look at Washington's billions in subsidies to its semiconductor industry as part of its "Chip Act" of 2022, write commentators in pro-government media in China.

The industry is now waiting with some concern to see how Donald Trump will position himself on the issue once he takes office. Some analysts believe that the new investigation launched by his predecessor's administration could provide him with a scoring card for the new punitive tariffs on goods from China that he threatened during the election campaign. Other analysts suspect that Trump could use the threat of punitive tariffs or import bans on legacy semiconductors as a new "negotiating chip" in his power play with Beijing in order to force the leadership there to make trade policy concessions. (sb)

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