Biden Initiates New Chinese Chips Trade Probe, Set to Transfer Responsibility to Trump

The Biden administration declared its last-minute trade investigation Monday into older Chinese-made "legacy" semiconductors that could heap additional US tariffs on chips from China powering everything from cars and washing machines to the infrastructure of telecommunications gear.

US Trade Representative Katherine Tai said the probe was geared to protect American as well as other semiconductor manufacturers against China's enormous state-led build-up of the local chip supply.

The "Section 301" probe, launched four weeks before President-elect Donald Trump takes office on Jan. 20, will be handed over to his administration in January for completion, Biden administration officials said.

The effort could offer Trump a ready avenue to begin imposing some of the hefty 60% tariffs he has threatened on Chinese imports.

Outgoing President Joe Biden has already imposed a 50% U.S. tariff on Chinese semiconductors that takes effect on Jan. 1. His administration has also tightened export curbs on advanced artificial intelligence and memory chips and chipmaking equipment.

Legacy chips rely on older manufacturing processes introduced more than a decade ago and are often far less complex than chips used in AI applications or sophisticated microprocessors.

US Commerce Secretary Gina Raimondo said Monday that research by her department showed two-thirds of the US products using chips had Chinese legacy chips in them and half of the US companies did not know the origin of their chips, including some in the defense industry, findings that were "fairly alarming."

In a statement, China's commerce ministry called the U.S. chips probe "protectionist" and said it would harm American companies and disrupt the global chip supply chain. It said Beijing would "take all necessary measures to firmly defend its rights and interests."

A spokesman for Trump's transition team did not immediately return a request for comment.

Tai said reporters the trade agency has uncovered evidence that China is targeting the semiconductor industry for global domination, adding: "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."

PUBLIC HEARING IN MARCH

The Biden administration will start taking public comments on the probe from Jan. 6, and has scheduled a public hearing for March 11-12, according to a Federal Register notice on the probe, which is due for completion within a year.

The probe is being conducted under Section 301 of the Trade Act of 1974, the same unfair trade practices statute Trump invoked to impose tariffs of up to 25% on some $370 billion worth of Chinese imports in 2018 and 2019, triggering a nearly three-year trade war with Beijing.

According to the Information Technology Industry Council, a trade group that represents the U.S. tech sector, the investigation will have complex and far-reaching implications for the global economy and supply chains and urges the USTR not to prejudge the outcome.

Jason Oxman, the group's president, said he was concerned about the probe's launch during a presidential transition, "and we strongly urge officials in the current and incoming administrations to conduct the inquiry in an objective and collaborative manner," ITIC President Jason Oxman said in a statement.

Most U.S. smartphones, laptop computers, video game consoles and other consumer electronics products are still imported from China.

DOWNSTREAM GOODS PROBED

According to a Biden administration official, the investigation would examine both the importation of chips themselves, but also look into their downstream use in various components and finished products intended for high-value applications that include military hardware, automobile parts, and medical devices.

Also on the agenda is production by China of silicon carbide substrates and wafers to be used for semiconductor production.

After the COVID-19 pandemic disrupted the supply of semiconductors and temporarily halted production of autos and medical equipment, the U.S. has sought to build its own semiconductor supply chain with $52.7 billion in new subsidies for chip production, research, and workforce development.