Commerce Department Launches Semiconductor Supply Chain Review to Gauge China Risk

Semiconductor chips on a printed circuit board on Feb. 17, 2023. (Florence Lo/Illustration/Reuters)

On Thursday, the U.S. Department of Commerce announced a semiconductor supply chain review to identify areas of dependence on China and reduce related national security risks.

The Commerce Department already has export controls for advanced chips and chipmaking equipment; the review concerns legacy chips that the department defines as being produced with 28-nanometer technology or larger.

These legacy chips are used in most cars, smartphones, refrigerators, televisions, washing machines, military systems, and medical devices. Disruptions in the supply of legacy chips may negatively impact U.S. manufacturers and the lives of American consumers.

“Legacy chips are essential to supporting critical U.S. industries, like telecommunications, automotive, and the defense industrial base. Addressing non-market actions by foreign governments that threaten the U.S. legacy chip supply chain is a matter of national security,” said Commerce Secretary Gina Raimondo in a press release.

The Bureau of Industry and Security (BIS) under the department will launch the survey in January to collect American companies’ sourcing data on legacy chips.

“Over the last few years, we’ve seen potential signs of concerning practices from the PRC to expand their firms’ legacy chip production and make it harder for U.S. companies to compete,” Ms. Raimondo said, referring to the official name of the People’s Republic of China.

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She added that the survey result would inform further actions for the U.S. government to “build strong, diverse, and resilient semiconductor supply chains.”

The new review builds on past work and findings.

In January 2022, the Department of Commerce reported that the most critical chip shortages were in legacy chips—those produced with 40-nanometer or older technology.

A report BIS released last week warned: “The PRC government has provided its domestic semiconductor industry with an estimated $150 billion in subsidies in the last decade, which is likely to drive below market pricing for legacy semiconductors and create an unlevel global playing field for US and other foreign competitors.”

According to the same report, China is the biggest market for U.S. semiconductor companies; 30 to 40 percent of their sales go to China versus 25 percent to the United States.

The Coalition for a Prosperous America (CPA), an advocacy organization representing exclusively manufacturers with productions in the United States, has urged the U.S. government to expand export controls from advanced chips to legacy chips.

In an email, Jeff Ferry, CPA’s chief economist, told The Epoch Times: “The legacy chip market is critically important to almost all American industry, and it’s very important to rebuild capacity here in the U.S. and not allow China to dominate this market. Legacy chips should really be called mainstream chips as they are a larger market than so-called advanced chips.”

“China’s growing production capability in legacy or mature chips will ultimately drive dozens of U.S. chip companies—including manufacturers and chip designers—out of business, as they use the traditional Chinese playbook of subsidies, blatant intellectual property theft, overcapacity, and artificially low prices to dominate the global industry,” said Mr. Ferry when releasing a related report in August. “The U.S. government and the semiconductor industry need to wake up to the fact that neither free trade nor fair trade is possible with China.”

In the final rules for the $39 billion semiconductor production funding under the CHIPS and Science Act, the Commerce Department introduced specific clauses to prevent legacy manufacturing expansion in China from having access to the subsidy program. The first grant under the program was awarded on Dec. 11.