Beijing Launches Regulations and Probes Targeting U.S. Chip Manufacturing

It appears that the recent diplomatic discussions between the Trump administration and China about the potential TikTok deal were shadowed by the latest turn of events in the long-running feud regarding semiconductors. This time, the dispute’s epicenter is China, where recently unveiled regulations have been targeted towards U.S. chip manufacturers. Among these regulations, the most impactful seems to be the initiation of an anti-dumping investigation. This inspection focuses on the American legacy chips responsible for the operability of various common electronic devices such as vehicles, refrigerators, washing machines, and data servers.

These legacy chips may not regularly occupy newspaper headlines like the state-of-the-art graphic processing units (GPUs), however, they play an invaluable role in powering our everyday appliances. What intensifies the situation is that Chinese companies have recently risen as potent competitors in this sector. By implying that U.S. companies are overwhelming the local Chinese market with these inexpensive legacy chips, China is paving the way for potential tariffs which could hinder the American products’ competitiveness.

Furthermore, the Chinese market regulator has initiated an antitrust investigation against the tech giant Nvidia, an American multinational company known for designing GPUs. Preliminary results imply that Nvidia might have defied certain promises made during their acquisition of Mellanox, the Israeli tech company, in 2020. Adding to the complications, allegations have been made that China’s Cyberspace Administration has commanded tech companies such as ByteDance and Alibaba to halt their purchases of Nvidia’s latest chips.

In conjunction to these, Beijing also rolled out an anti-discrimination inquiry against U.S. trade and industrial policies, putting forward accusations of biased treatment by Washington favoring its local chip manufacturers like Intel. The evidence they cite includes subsidies provided under CHIPS Act and the implementation of tariffs.

Witnessing the past five years of the technological struggles between the U.S. and China, these recent developments feel conventionally similar yet unusually inverted. It was usually Washington that had been devising several constraints to limit China’s access to sophisticated semiconductors. Such constraints encompassed comprehensive export controls, tariffs, critical investment reviews, and even HR-related bans. However, the recent events hint towards a shift in the course of action by China, showcasing their readiness to resort to a similar set of tools to counter their primary geopolitical competition.

At best, the implications of these prospective investigation threats over American chip companies might provide the Chinese negotiators with an additional bargaining chip to negotiate a more favorable arrangement concerning TikTok and the contested tariffs.

The logic behind the timing of these initiatives comes to light when considering the current on-going negotiations between the U.S. and China regarding the fate of TikTok. What appears to hold utmost importance for the Chinese government is whether the possibility of a deal can be exchanged for other concessions, which might be in the areas of tariffs or export controls.

In the political arena, semiconductors are emerging as a significant contender each day. The reciprocal actions undertaken by Beijing over the past week seem to indicate that they might have identified an unprecedented strategic advantage to leverage, primarily China’s mammoth domestic market. One of the major reasons why the U.S. was able to enforce export controls was due to its unique hold on the advanced technologies like the lithographic machines from ASML, Nvidia’s GPUs, and TSMC’s foundries, which are imperative for semiconductor manufacturing.

China, comparatively lacking similar strategic power, however, has an enormous consumer and manufacturing sector. The global importance of China’s consumer and manufacturing sector is perfectly exemplified by the fact that China holds the world’s largest automotive market, needing to import a significant volume of auto chips annually. By hinting its readiness to use this market access strategically and defensively, Beijing seems to be taking a leaf from the Trump administration’s playbook.

In reaction to these events, representatives from the American semiconductor industry appear to be choosing a cautious stance awaiting the outcomes of these probes. In numerous instances, these investigations often carry on for many years before any punitive measures are decided. It might also transpire that these probes could be concluded abruptly if a mutually beneficial arrangement can be achieved, such as agreeing on TikTok’s ownership.

However, should these negotiations fail to move forward as planned, these probes might take a more solid form—converting into actual regulatory actions. Such regulations could include special tariffs specifically aimed at American chip companies doing business with China, multibillion-dollar antitrust allegations, and alternative political solutions that might give Chinese firms an upper hand.

In the past, American and Chinese legacy chips’ manufacturers have been mostly spared from the crosshairs of geopolitical restrictions. However, if the recent investigative actions of Beijing are any indication, their situation might take a turn for the worst moving forward. The attention of the Chinese investigative bodies is primarily on those legacy chips which leverage technology that is more than 15 years old, also known as the 40-nanometer (nm) process tech chips.

Ironically, they have become a focal point because of their cost-effectiveness, providing basic electronic control functions. If Beijing successfully establishes anti-dumping tariffs, American legacy chips might suddenly find themselves in a difficult competitive spot against local substitutes. Besides, even losing a small fraction of the Chinese market could significantly impact U.S firms’ revenue, potentially resulting in losses totaling billions of dollars. Increasing trade barriers might usually lead to losses on both sides, yet China seems ready to play out this lengthy game. The most recent activities suggest that Beijing is sending a signal to American companies: maintaining their consistent access to the Chinese markets might come at a price.