The new tariffs are the result of a year-long survey launched by the Bureau of Industry and Security (BIS), which itself was part of an investigation into China's semiconductor production chain originally launched during the Biden administration. The resulting report has been made public and paints an interesting picture. This part of the investigation focused on "legacy" chips (usually 22nm and larger) and other components like op-amps, analog chips, and diodes — all components that are material to building most any electronic device.
The BIS compares the current over-reliance on Chinese semiconductors to the situation that took place during the COVID pandemic, where it became painfully obvious that far too many products relied on components that had a limited number of centralized sources. In this instance, the BIS found that "across all respondents’ products, 66 percent (by revenue) contained or likely contained at least one chip manufactured by PRC-based foundries," with many respondents to even being able to pinpoint the source of those chips, or when they did, if they originated in the PRC.
The report claims that the situation is the results of "non-market overcapacity and economic coercion." According to HoganLovells , the findings "[point] to China’s industrial policy frameworks, including the Made in China 2025 initiative, which reportedly establishes specific numerical targets for domestic semiconductor production and capacity."
The non-market means through which China allegedly managed to position itself as the source of the bulk of the U.S.' semiconductor supplies include "state-owned or state-controlled enterprises, market access restrictions, opaque regulatory practices, wage suppression, and substantial state financial support through government guidance funds." Analogous to the EV and green energy markets, these practices resulted in an artificial lowering of prices and subsequent concentration of production within China.
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Key considerations
- Investor positioning can change fast
- Volatility remains possible near catalysts
- Macro rates and liquidity can dominate flows
Reference reading
- https://www.tomshardware.com/tech-industry/semiconductors/SPONSORED_LINK_URL
- https://www.tomshardware.com/tech-industry/semiconductors/trump-administration-announces-new-tariffs-on-chinese-chips-and-electronic-components-but-fresh-sanctions-wont-take-effect-until-2027-and-rates-remain-unknown#main
- https://www.tomshardware.com
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