Why the U.S. is investigating the Chinese chip industry

A new front has opened up in the chip wars. The Biden administration announced Monday it’s launching an investigation into alleged unfair trade practices by China around chips — not the high-end chips powering AI, but the more regular, everyday computer chips.

When the Chinese government invested hundreds of billions of dollars in solar manufacturing, solar manufacturing in many other countries was nearly wiped out. It invested hundreds of billions in shipbuilding, and U.S. shipbuilding was almost erased. Now, the Biden administration says, the same is about to happen with low-end computer chips.

“Over the past decade, the Chinese government has been pouring many billions of dollars each year into its semiconductor industry,” said Chris Miller, a professor at Tufts University and author of “Chip War.” He said the Chinese government has given out subsidized loans and grants, even buying up shares of Chinese chipmakers.

“And this is letting Chinese firms sell chips well below market prices, and this is giving them the opportunity to grow their market share at the expense of Western firms,” Miller said.

To the extent, he said, that some U.S. chipmakers are becoming hesitant to invest in their own new capacity for fear that artificially pumped up Chinese competition might make such investment pointless. 

“I’m actually not convinced that that level of risk actually exists for the bulk of these older generation semiconductors,” said Stacy Rasgon, a managing director at Bernstein Research.

He said low prices might not be enough for Chinese production to be a global threat.

“Price can be a factor, certainly in your purchase decision, but it’s not nearly the only factor,” he said.

The Biden administration’s investigation would open the door to tariffs on chips, which the U.S. doesn’t import much of, and on anything that has Chinese chips in it — from refrigerators to cars — which the U.S. does import a lot of. That has Jason Oxman concerned. He’s president of the Information Technology Industry Council, a global technology trade association.

“Clearly, global supply chains are at risk. In an escalating trade war between China and the U.S., nobody wins,” he said.

For its part, China’s Ministry of Commerce told Marketplace the investigation was protectionist and pointed to multibillion-dollar American subsidies for U.S.-based chip manufacturing. The ministry said it would take all necessary measures to protect its interests.