USTR Initiates Section 301 Investigation on China’s Semiconductors

On 23^rd December 2024, United States Trade Representative (USTR) announced the initiation of an investigation regarding China’s acts, policies, and practices related to targeting of the semiconductor industry for dominance. The investigation will be conducted under Section 301 of the Trade Act of 1974, as amended.

The People’s Republic of China (PRC) routinely engages in non-market policies and practices, as well as industrial targeting, of the semiconductor industry that enables PRC companies to significantly harm competition and create dangerous supply chain dependencies in foundational semiconductors.  

The US Administration is taking additional action to protect American workers and businesses from the PRC’s trade practices in the semiconductor sector and support a healthy domestic industry for foundational semiconductors. 

These actions include:

• Launching a Section 301 investigation to examine the PRC’s targeting of foundational semiconductors

The Office of the U.S. Trade Representative is launching a Section 301 investigation to examine the PRC’s targeting of foundational semiconductors (also known as legacy or mature node chips) for dominance and the impact on the U.S. economy.

In addition, the investigation will initially assess the impact of the PRC’s acts, policies, and practices on the production of silicon carbide substrates or other wafers used as inputs into semiconductor fabrication.

PRC semiconductors often enter the U.S. market as a component of finished goods. This Section 301 investigation will examine a broad range of the PRC’s non-market acts, policies, and practices with respect to the semiconductor sector, including to the extent these semiconductors are incorporated as components into downstream products for critical industries like defense, automotive, medical devices, aerospace, telecommunications, and power generation and the electrical grid. 

• Awarding and catalyzing billions of dollars in semiconductor manufacturing projects across the country

The US Administration has championed efforts to ensure more chips are made in America by American workers, in particular through CHIPS and Science Act funding, which allocates at least $2 billion for mature semiconductors.  

The United States is investing across the semiconductor supply chain—including the upstream materials critical to chip manufacturing such as silicon carbide and wafers.  To date, the Department of Commerce has catalyzed billions of dollars in private sector investments that will serve the American auto and defense industries, including the Texas Instruments projects in Texas and Utah, the GlobalFoundries projects in Vermont and New York, and the Bosch project in California.  Many of these investments also include supply agreements with customers across critical infrastructure industries to maximize the predictability, volume, and quality of domestically manufactured chips needed to power complex technology.  These investments are compounded and sustained by this Administration’s 48D Advanced Manufacturing Investment Credit, which will provide up to a 25% tax incentive for the manufacturing of semiconductors, semiconductor manufacturing equipment, and wafer production.

• Reducing national security risks in federal supply chains

Semiconductors are key components of U.S. critical infrastructure that have many military applications. It is vital that federal agencies procure secure and trusted chips. To clean up federal procurement of semiconductors, the US Administration is:

• Implementing a statutory provision in the James M. Inhofe National Defense Authorization Act for FY 2023 that prohibits executive agencies from procuring or obtaining products and services that include chips from certain Chinese fabs and other entities of concern.
• Releasing a Request for Information (RFI) to gauge the best ways for government contractors to scale up their use of domestically manufactured chips, particularly for critical infrastructure.  The RFI intends to solicit commercial ideas from industry that may inform future policymaking in support of the government-wide effort to leverage existing manufacturing capacity.
• Issuing guidance to help the Federal Government – the world’s largest buyer – organize its demand for domestic semiconductors so that agencies can mitigate the risk posed by undue dependence on foreign manufacturing, limited competition, and possible higher manufacturing costs.  This effort includes agencies developing strategies to dual or multiple source semiconductors, increasing transparency for critical infrastructure supply chains, and providing the government’s demand for the products and services that use these chips.
• Prioritizing supply chain resilience and bolstering our toolkit to address non-market policies and practices.

US made supply chain resilience a Day One priority in his Administration.  The first-ever U.S. Government Quadrennial Supply Chain Review, published on December 19, provides an in-depth assessment of the United States’ critical supply chains, actions taken over the last four years to make each supply chain more resilient, and necessary steps to increase U.S. resilience in the future. 

The Review includes a comprehensive strategy to respond to non-market policies and practices because they pose a significant challenge in critical industries covered in the supply chain report. The strategy details the types of comprehensive action necessary to combat non-market policies and practices, including procurement policies. 

• Working with partners around the world to strengthen cooperation on semiconductor supply chains and address shared concerns about China’s unfair practices

Semiconductor supply chains are critical not only to the United States but to all of our allies and partners.  The Biden-Harris Administration has closely consulted with allies and partners on promoting economic resilience and addressing the PRC’s non-market practices in the semiconductor supply chain, including through the following efforts:

• The State Department launched the CHIPS and Science Act’s International Technology Security and Innovation (ITSI) Fund, which has thus far partnered with eight countries – Costa Rica, Panama, Vietnam, Indonesia, India, Kenya, the Philippines, and Mexico – to promote semiconductor supply chain development, security, and diversification.
• The Department of Commerce announced the Indo-Pacific Economic Framework for Prosperity (IPEF) Agreement Relating to Supply Chain Resilience with 13 diverse partner countries across the Indo-Pacific, led by the United States, to coordinate more resilient supply chains for semiconductors and other industries.
• Within the G7, the United States has championed efforts to bolster economic resilience and address harmful market distortions and global excess capacity in key sectors resulting from non-market policies and practices.   This led to the establishment of mechanisms to jointly monitor and respond to these detrimental practices, including in the semiconductor sector.  

Background 

Section 301 of the Trade Act of 1974, as amended, (Trade Act) is designed to address unfair foreign practices affecting U.S. commerce. Section 301(b) may be used to respond to unreasonable or discriminatory foreign government practices that burden or restrict U.S. commerce. Under Section 302(b) of the Trade Act, the U.S. Trade Representative may self-initiate an investigation under Section 301. 
 The U.S. Trade Representative must seek consultations with the foreign government whose acts, policies, or practices are under investigation. USTR has requested consultations with China in connection with the investigation. 

Next Steps for Businesses

This investigation could bring significant changes to global semiconductor supply chains and trade practices. If you have questions about how these developments might impact your business or the broader industry, staying informed and prepared will be key. Don’t hesitate to reach out for insights or clarification on these important dynamics.

The relevant legal acts have been published in the Whitehouse’s statement and releases.