China Turns Legacy Chips Into a Trade Weapon

While nan Trump management was trying to make a TikTok woody hap during a gathering pinch China past weekend, Beijing was engaged adding its ain bargaining chips to nan table. Actual chips, successful fact—semiconductors.

In nan past week, China has unveiled a bid of regulatory actions targeting American chipmakers. The astir important is an anti-dumping investigation into American bequest chips that powerfulness everything from cars and refrigerators to washing machines and information centers. Unlike cutting-edge GPUs, these chips seldom make headlines, but they are basal to powering mundane electronics. Crucially, this is besides an area wherever Chinese firms person caught up. By alleging that American firms person been flooding nan Chinese marketplace pinch inexpensive bequest chips, Chinese regulators are opening nan doorway to tariffs that would make American products little competitive.

Then came antitrust action against Nvidia. China’s marketplace regulator publicly announced preliminary findings that propose nan institution violated commitments it made during its 2020 acquisition of nan Israeli institution Mellanox. Days later, nan Financial Times reported that nan Cyberspace Administration of China told ByteDance and Alibaba to extremity buying Nvidia’s latest chips. And finally, Beijing besides launched an anti-discrimination probe into US waste and acquisition and business policy, accusing Washington of unfairly favoring its ain chipmakers for illustration Intel done CHIPS Act subsidies and tariffs.

For anyone pursuing nan past 5 years of nan US-China tech war, each this feels familiar—but upside down. Previously, it was Washington that kept inventing caller devices to choke disconnected China’s entree to precocious semiconductors: sweeping export controls, tariffs, finance reviews, and moreover unit bans. Now, aft years of playing defense, China is showing that it is prepared to usage nan aforesaid instrumentality kit against its main geopolitical rival. At a minimum, threatening investigations of American spot companies could springiness Chinese representatives different portion of leverage to discuss a amended woody connected TikTok and tariffs.

“The Chinese person ever been very bully students of nan US. Now we spot that they person nan assurance and nan sophistication to reply successful kind,” says Dan Wang, writer of Breakneck: China’s Quest to Engineer nan Future and a investigation chap astatine nan Hoover Institution.

New Chips connected nan Table

The timing of these probes is hardly a mystery. The US is presently negotiating a woody to support TikTok moving successful nan US—and bring it partially nether American control. Unlike Washington, which has been consumed pinch questions of really to champion modulate nan app, Beijing cares small astir nan destiny of TikTok itself. What matters to nan Chinese authorities is whether it tin waste and acquisition support of a imaginable woody for concessions elsewhere, for illustration connected tariffs aliases export controls.

Semiconductors, which are getting much politically important by nan day, are a premier target. “Beijing is overmuch little concerned astir nan destiny of TikTok than astir nan expertise of its semiconductor manufacture to get technologies required for manufacturing precocious semiconductors, peculiarly those captious for training ample connection models and continuing to let invention successful nan AI sector,” says Paul Triolo, a partner astatine nan advisory patient DGA-Albright Stonebridge Group.

The countermeasures this week propose that Beijing has identified a caller constituent of leverage: China’s monolithic home market. The US was capable to propulsion disconnected export controls because companies successful nan US and allied nations still power nan cutting-edge technologies required to make semiconductors successful nan first place: ASML’s lithography machines, Nvidia’s GPUs, and TSMC’s foundries. Beijing has nary balanced chokehold, isolated from possibly successful rare-earth minerals. But what China does person is simply a immense user and manufacturing base. For example, China has nan largest automotive marketplace successful nan world, which requires billions of imported car chips each year. By signaling its willingness to weaponize entree to that market, it is borrowing a page from Trump’s playbook.