Having denied Chinese firms access to advanced foreign semiconductors, Washington is launching probe into subsidised domestic production.

Last month, the United States launched another round of export controls on semiconductors by denying their sales to dozens of Chinese companies.

It was quickly followed by an announcement from US Trade Representative Katherine Tai that she had launched an investigation into Chinas domestic production of chips, including those for electric and self-driving cars.

According to Tai, China is suspected of exercising extensive anticompetitive and non-market means to try to achieve self-sufficiency in critical industries like defence, automotive, medical devices, aerospace, telecommunications, and power generation and the electrical grid.

Moreover, subsidised Chinese chipmakers might flood the global market and drive down prices. Affordable and reliable Chinese chips for everyone surely that would be very bad for global consumers.

Actually, thats a long way off; China cant make enough legacy chips to meet its own needs, let alone ship them overseas.

Evidence indicates that China seeks to dominate domestic and global markets in the semiconductor industry and undertakes extensive anticompetitive and non-market means to achieve indigenisation and self-sufficiency, Tais office said in a statement.

The trade probe will continue after Tais tenure ends with the Joe Biden administration.

But wait, Uncle Sam, havent you imposed more rounds of cracking down on the sales of semiconductors to China than most people can count? Now you are saying the Chinese are not supposed to produce their own chips.

Washington might as well demand China stop going hi-tech and go back to making bicycles and knock-off sport shoes. But wait, even rental bicycles in China carry computer chips, so they may need to be targeted, too. You would think fair-minded observers might see through the absurdity. A Wall Street Journal piece expressed outrage at the Chinese: China isnt satisfied with becoming the worlds dominant maker of electric vehicles. It wants the chips inside to be Chinese-made too.

Something wrong with that? There is really no way to satisfy the US except for the Chinese to commit harikiri on their EV and chips industries!

US sanctions on Chinas semiconductor industry have been endlessly expanding. In response, Chinese officials have been urging bosses in the auto, chip and telecoms industries to avoid US-made chips, whose supplies can be cut off by Washington at the drop of a hat.

Of course, everyone subsidises their chips industries, including the European Union but especially the United States. And Washington has been urging or forcing domestic industries to rip out Chinese-made chips and other electronic components found in their systems.

The Chips Act has been Bidens signature legislation to earmark almost US$53 billion to shore up domestic semiconductor industry and jump-start production, something he bangs on about publicly at every turn. Washington makes self-sufficiency a dirty word for China but it is doing exactly that with the Chips Act and more.

Perhaps Tais office has jumped the gun, or is trying to nip it in the bud. Chinas EV makers still rely on foreign suppliers for more than 90 per cent of their chips. That has led to warnings from the Ministry of Industry and Information Technology and the Development Research Centre under the State Council that domestic industries could be choked off by foreign trade restrictions.

According to the centre, for computing and control chips in EVs, the self-sufficiency rate is under 1 per cent, while for power and memory chips, its about 8 per cent. Control chips are the brains of high-end EVs and self-driving cars; they also fall under the advanced chip segment subject to various US trade restrictions. In other words, the industry is still at the mercy of foreign suppliers.

The new US investigation is less about the sale of cheap Chinese chips but rather an extension of another front in the trade war against China such as the latters EV dominance. Thats just good old mercantilism on steroids. But somehow, thats Chinas fault too.

Republished from South China Morning Post on 12 January, 2024