Tech supply chains at risk as the US launches probe into China’s legacy chip dominance

The US has intensified its campaign to counter China’s ambitions in technology leadership, with the Biden administration initiating a high-stakes investigation into China’s expanding dominance in legacy semiconductor manufacturing.

The US Trade Representative (USTR) is probing whether China’s practices — backed by extensive state support — constitute unfair competition, endangering American industries and national security.

“Evidence indicates that China seeks to dominate domestic and global markets in the semiconductor industry and undertakes extensive anticompetitive and non-market means, including setting and pursuing market share targets, to achieve indigenization and self-sufficiency,” the USTR said in a statement.

Legacy chips, essential for everything from cars and defense systems to medical devices, have become the latest battleground in the US-China tech war, with both nations vying to control this critical segment of the semiconductor market.

“Given the prevalence of semiconductors throughout our economy – from everyday consumer electronics and cars to military systems and AI data centers – we urge the Office of the US Trade Representative to proceed deliberately and to work closely with industry throughout the process,” John Neuffer, CEO of the Semiconductor Industry Association (SIA) said in a statement supporting the USTR move.

Neuffer further suggested that leaders in Washington should also pursue a proactive and affirmative agenda that “builds our domestic fabrication and packaging capacity, strengthens our research and design ecosystem, and creates new demand for Made-in-America chips at home and overseas.”

Analysts emphasize that sanctions on matured node semiconductors could further impact China’s domestic self-sufficiency and export protocols.

“With access to advanced semiconductor nodes already restricted, additional sanctions targeting matured node technologies — such as MCUs, application processors, or connectivity components like Wi-Fi, Bluetooth, and RF — could have a significant impact on China,” said Neil Shah VP for research and partner at Counterpoint Research. “Such measures could disrupt China’s self-sufficiency in semiconductor production and consumption, while complicating protocols for sourcing chips from outside its borders for manufacturing goods domestically and for export.”

China’s growing market power

China is poised to account for more than 60% of new global capacity for legacy chips by the end of the decade, leveraging its “Made in China 2025” strategy.

This plan, which sets numerical targets for global market share, is supported by billions of dollars in subsidies, wage-suppressing labor practices, and state-directed technology transfers, according to the USTR.

“Evidence indicates that in just six years, China has nearly doubled its global share of foundational logic semiconductors production capacity,” the Section 301 Investigation Docket statement read. “Based on announced new fabrication plants (fabs), China’s share is projected to reach approximately half of the world’s capacity by 2029.”

In addition, projections show that China will lead in production capacity for other types of legacy semiconductors, such as power chips, the statement added.

Unfair practices and strategic risks

The Biden administration has alleged that China’s dominance stems from anti-competitive practices, including cyber intrusions, forced technology transfers, and underpricing chips by 30% to 50% — often below production costs.

Katherine Tai, the US Trade Representative, explained that these artificially low prices are forcing out competitors and consolidating China’s control over the market.

“China’s acts, policies, and practices appear to have and to threaten detrimental impacts on the United States and other economies, undermining the competitiveness of American industry and workers, critical US supply chains, and US economic security,” the statement added.

“This investigation underscores the Biden-Harris Administration’s commitment to standing up for American workers and businesses, increasing the resilience of critical supply chains, and supporting the unparalleled investment being made in this industry,” Tai said in the statement.

Beyond economics, this dominance creates significant strategic risks.

“These components are vital for sectors such as space, defense, and automotive, with Chinese automaker BYD leveraging them to drive cost-effective EV production,” said Shah. “While the US has alternatives, they are less cost-effective, likely raising the prices of US-made products and reshaping the global competitive landscape.”

The US response and supply chain vulnerabilities

The year-long USTR probe will examine the impact of China’s chip policies on American industries. This includes assessing vulnerabilities in critical sectors, from defense to medical devices, and investigating China’s control over silicon carbide substrates—an essential component in semiconductor manufacturing.

The investigation follows the Biden administration’s broader efforts to strengthen the US semiconductor supply chain through the $52 billion CHIPS and Science Act.

Experts have warned that without addressing China’s market manipulation, the effectiveness of these domestic investments could be undermined.

A public hearing is scheduled for March 2025, with the USTR also inviting industry input to devise strategies that promote the adoption of domestically produced chips, particularly in critical infrastructure.

Analysts caution that the success of such measures will depend on careful execution by the incoming Trump administration.

“The probe is unlikely to result in an abrupt suspension of supplies, as this would destabilize the value chain,” said Faisal Kawoosa, founder and lead analyst at Techarc. “The direction and the impact of this probe will largely depend on how the incoming Trump administration chooses to pursue it once in office. While such a move could disrupt existing supply chains, it is unlikely that supplies will be abruptly cut off, as this would risk destabilizing the entire technology value chain.”

“However,” Kawoosa pointed out, “finding alternatives to Chinese components — especially at comparable price points and volumes — will be a significant challenge.”

According to Shah, the ripple effects could force a major restructuring of supply chains, reshaping China’s role as a manufacturing hub both for its domestic needs and global markets.

“Mature-node chips remain critical for applications in sectors such as space and defense — areas the US appears to be targeting — and the automotive industry, where companies like BYD leverage advanced semiconductor technologies to produce cost-effective EVs for both domestic and global markets,” Shah pointed out.

A clash for tech leadership

The legacy chip probe is the latest flashpoint in an escalating US-China tech rivalry that has spanned semiconductors, AI, and quantum computing. Earlier this year, China imposed restrictions on critical tech manufacturing materials in retaliation against US export controls on advanced chips.

Meanwhile, Beijing has launched its own investigations into American companies like Nvidia, underscoring the tit-for-tat nature of the conflict.

President-elect Donald Trump is expected to continue Biden’s aggressive approach. Trump has floated up to 60% tariffs on Chinese goods, signaling that the US will maintain pressure on Beijing’s tech ambitions under his administration.

What’s at stake for businesses?

For enterprises, the implications of this probe are wide-ranging. Companies sourcing legacy chips from China could face increased costs, supply disruptions, or regulatory scrutiny. The push to diversify supply chains and adopt US-produced chips may present opportunities but also pose logistical challenges, particularly for industries reliant on cost-sensitive components.

SIA’s Neuffer, in his statement, called for close collaboration between the government and industry, emphasizing the need for deliberate policymaking to ensure semiconductor resilience and sustained leadership in global markets.

The USTR’s probe into China’s legacy chip dominance is more than a trade dispute—it’s a fight for technological leadership and strategic security in a rapidly evolving global landscape. As Washington ramps up efforts to counter Beijing’s ambitions, this investigation’s outcome could shape the semiconductor industry’s future and redefine the balance of power in the tech world.

“Governments may need to ‘compensate’ businesses for being forced to adopt alternative sources, which are often less price-competitive,” Kawoosa explained. “Historically, a ‘turn the tap off’ approach in global trade has proven problematic, as it tends to create ripple effects that impact all parties, including the country initiating the restrictions.”