Introduction
On December 23, 2024, President Joe Biden launched a Section 301 investigation into China’s legacy semiconductor industry. The investigation focuses on national security risks and potential impacts on global semiconductor markets and critical U.S. infrastructure.
This move is expected to benefit Taiwan’s semiconductor industry, especially companies like TSMC, as it aims to curb China’s competitive pricing strategies.
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Key Developments:
- Biden Launches Investigation: The U.S. has formally started a probe into China’s legacy semiconductor market over national security concerns.
- Impact on U.S. Supply Chains: China’s dominance in legacy chip production raises alarms about the reliability of U.S. supply chains.
- Taiwanese Foundries to Benefit: Taiwan’s semiconductor giants, such as TSMC, are likely to gain as the U.S. targets China’s low-cost strategies.
- China’s Pricing Strategy: Chinese foundries have been undercutting global prices, which the U.S. aims to curb.
- Tariff Increase on Chinese Chips: The U.S. plans to raise tariffs on Chinese semiconductors from 25% to 50% by 2025.
Why Legacy Semiconductors Matter
Legacy semiconductors, while not cutting-edge, are crucial for many industries. These chips are used in power management, communication devices, and everyday items like electric vehicles and home appliances. Despite being older technology, they are essential for global supply chains in sectors like automotive and medical devices.
U.S. Secretary of Commerce Gina Raimondo warned that heavy reliance on China for legacy chips could create national security risks.
The pandemic showed how vulnerable supply chains can be when these chips are unavailable. The U.S. wants to ensure a more resilient supply chain for these critical components.
Concerns Over China’s Market Dominance
China’s aggressive pricing tactics in the legacy chip market have raised concerns. Chinese manufacturers have been offering chips at very low prices, undercutting competitors globally.
This has destabilized the market and harmed U.S. and European chipmakers who can’t compete with these low prices.
The U.S. investigation aims to determine if China’s pricing strategies are unfair and harmful to U.S. businesses. If found to be harmful, the U.S. may impose tariffs or other trade restrictions on Chinese chips.
Taiwan’s Semiconductor Industry Poised for Growth
Taiwan’s semiconductor foundries, particularly Taiwan Semiconductor Manufacturing Company (TSMC), are expected to benefit from this investigation. With the U.S. probing China’s practices, Taiwan could gain market share as companies look for alternatives to Chinese chips.
Leuh Fang, chairman of Vanguard International Semiconductor (a TSMC affiliate), highlighted that Taiwan’s role in the global semiconductor market is growing. As Western companies move supply chains away from China, Taiwan is stepping up to meet the demand for legacy chips, especially in power management ICs.
China’s Efforts to Expand Its Semiconductor Industry
China has been working to increase its domestic semiconductor production, particularly in legacy chip manufacturing. The country’s domestic IC substitution policy aims to boost its market share in older chip technologies. By 2025, China is expected to control over 25% of the global market for mature process nodes.
However, the surge in China’s chip production has led to an oversupply, causing Chinese manufacturers to lower prices. The U.S. investigation aims to address this issue by curbing China’s ability to flood the market with cheap chips.
Future Tariff Plans and Market Impact
The U.S. has already announced plans to raise tariffs on Chinese semiconductors from 25% to 50% by 2025. This move will put more pressure on China’s semiconductor industry, which is already struggling with U.S. sanctions and technological export restrictions.
The higher tariffs will raise costs for U.S. companies that rely on Chinese-made chips. This could push them to seek alternatives from other regions, especially Taiwan and South Korea, benefitting those countries’ semiconductor industries.
Conclusion
The U.S. investigation into Chinese legacy semiconductors is a significant move that could reshape the global semiconductor market. While it could negatively impact China’s market position, it presents opportunities for Taiwanese foundries like TSMC.
The investigation underscores the need for more secure and diversified semiconductor supply chains, especially for critical industries. If tariffs increase, Taiwan may see a further boost in demand for its chips, helping stabilize global semiconductor prices.
Taiwan’s status as a crucial player in the global chip manufacturing sector.
