Legacy chips: USA investigates possible China market manipulation

The USA is targeting China's semiconductor production of so-called legacy chips. The government suspects distortion of competition behind the market power: while China is lagging behind in modern manufacturing processes due to trade restrictions, most chips with coarser structures come from the country.

These include controllers, sensors and power management chips (PMICs), which use structures of 60 nanometers or even coarser ("matured nodes") and end up in cars, household appliances and medical equipment, among other things

In April 2024, the US and the EU launched a survey among companies to assess the spread of Chinese chips. At the time, US Secretary of Commerce Gina Raimondo warned that China could produce 60% of the world's legacy chips in just a few years.

Demand remains high because most applications do not require advanced manufacturing technology. At the same time, only a few companies want to build up production capacity for such old process generations – the margin on such chips, which only cost a few cents, is too low.

Chinese chips also in the US military

Based on the survey, the US Department of Commerce came to the conclusion that around half of US companies do not know the origin of their chips. This is said to include weapons manufacturers. This is surprising because the USA actually pays meticulous attention to the chips in weapons systems. There are specially certified US semiconductor plants for this purpose.

US Trade Representative Katherine Tai is leading the investigation with her office. In a statement, it writes: "There is evidence that China seeks to dominate domestic and global markets in the semiconductor industry and uses extensive anti-competitive and non-market means, including the setting and pursuit of market share targets, to achieve indigenization and self-sufficiency. China's actions, policies and practices appear to have harmful effects on the United States and other economies."

Speaking to the Reuters news agency, Tai emphasized that the artificially cheap chips could significantly damage and possibly even eliminate market-based competition. In addition to the chips themselves, the current investigation is also looking at US end devices with soldered semiconductor components.

Joe Biden's US government is initiating the investigation and will pass it on to Trump's administration at the end of January 2025. The first results are expected in March. The USA is already imposing punitive tariffs of 50 percent on Chinese semiconductors in January. They could be increased further after that.

ASML also benefits

The business figures of Dutch equipment manufacturer ASML underline the fact that China is investing heavily in the production capacity of older process technology. In the first three quarters of 2024 alone, Chinese manufacturers such as SMIC purchased lithography systems worth 7 billion euros – almost half of ASML's total sales revenue.

ASML managers have repeatedly emphasized that China only buys machines for older manufacturing processes. The company is not allowed to sell modern lithography systems to China.

(mma)