Biden Launches US Trade Probe into Chinese Chips, Threatening New Tariffs

The Biden administration has initiated a trade investigation into Chinese-made semiconductors, potentially leading to new US tariffs on chips used in a wide range of products, reports Reuters. The probe, announced just weeks before President-elect Donald Trump takes office, could see Trump impose significant tariffs on Chinese chips, potentially escalating trade tensions between the two nations.

The investigation, conducted under Section 301 of the Trade Act of 1974, focuses on older, "legacy" chips manufactured using mature processes. These chips are widely used in various consumer goods, including automobiles, washing machines, and telecommunications equipment. The US Trade Representative's office (USTR) alleges that China is unfairly using its state-driven capacity to produce these chips at artificially low prices, threatening US and other market-based chip producers.

"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," USTR Katherine Tai told reporters.

The probe, which will be handed over to the Trump administration for completion in January, could result in tariffs as high as 60%, according to Reuters. This follows existing tariffs imposed by the Biden administration on Chinese semiconductors, including a 50% tariff on chips coming into effect on January 1.

The Trump administration has indicated its willingness to escalate trade tensions with China. Trump has previously imposed significant tariffs on Chinese imports, triggering a protracted trade war. If Trump's choice for USTR, Jamieson Greer, is confirmed by the Senate, the probe must be completed within a year.

The investigation will examine not only the imported chips themselves but also their incorporation into downstream components and finished goods used in key industries such as defense, automotive, and medical devices. The probe will also target China's production of silicon carbide substrates and wafers used in semiconductor fabrication.

US Commerce Secretary Gina Raimondo highlighted the widespread use of Chinese legacy chips, stating that her department's research indicates two-thirds of US products contain such chips, with half of US companies being uncertain about the origin of their chips. This includes some companies in the defense industry, which Raimondo described as "fairly alarming."

The Biden administration has invested heavily in bolstering the US semiconductor supply chain, allocating $52.7 billion to support chip production, research, and workforce development. However, China's ambitious plans to expand its legacy chip capacity by more than 60% over the next decade are seen as posing a significant challenge to US efforts and creating unfair competition.

"It undercuts our companies and makes the US dependent on China for the chips that we use every day in so many things," Raimondo said. Despite the contentious US presidential election, the continuation of tariffs on Chinese goods, including electric vehicles, suggests a degree of policy continuity between the outgoing Biden administration and the incoming Trump administration on this key issue.