The Biden administration will launch a new probe targeting “legacy” Chinese semiconductors, which are integral to various sectors, including automotive, consumer goods, and defense systems. The White House expressed concerns that China’s “non-market policies and practices,” coupled with its industrial targeting, enable Chinese firms to undermine competition and create risky supply chain dependencies for foundational semiconductors.
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This news comes after a New York Times report earlier this week that the Biden administration could be contemplating such an investigation.
U.S. Will Conduct the Investigation under “Section 301”
This investigation will be conducted under “Section 301” of the Trade Act of 1974 and will examine China’s activities in “the production of silicon carbide substrates or other wafers used as inputs into semiconductor fabrication.” The broader goal is to evaluate U.S. reliance on Chinese legacy chips across critical areas, such as telecommunications and the electrical grid.
One possible outcome of this probe is the imposition of tariffs on Chinese legacy chips.
What Are Legacy Chips?
Unlike cutting-edge chips used in artificial intelligence, legacy chips are manufactured with less advanced technology. Older semiconductors, often called “legacy” or “foundational” chips, are essential for a wide range of products, including smartphones, vehicles, appliances, and weaponry.
Although Chinese chipmakers lag behind global leaders like TSMC (TSM) in advanced manufacturing, they excel in producing legacy chips at scale. This dominance raises concerns about U.S. supply chain vulnerabilities, prompting Washington to escalate pressure on China’s semiconductor industry.
U.S. Government Is Trying to Curb China’s Technological Prowess
This measure is part of the Biden administration’s broader strategy to curb China’s technological advancements, including increased tariffs on products ranging from electric vehicles to semiconductors earlier this year.
Interestingly, this investigation comes just weeks before President Biden is set to transfer power to Donald Trump. According to Reuters, administration officials confirmed that Trump’s incoming team will oversee the completion of the probe.
What Is the Best Chip Stock to Buy?
For investors interested in the semiconductor sector, we have rounded up the best chip stocks that Wall Street analysts may be bullish or cautiously optimistic about using the TipRanks Stocks Comparison tool. From this comparison, analysts appear to be bullish on Broadcom (AVGO), Marvell (MRVL), and TSMC (TSM).
