The Institute for Policy Innovation recently provided comment to the Office of the United States Trade Representative (USTR) supporting the agency’s Section 301 investigation into China’s manipulation to dominate the semiconductor industry. As USTR specified when it announced the investigation in late December, the initial focus will be on legacy semiconductors and Silicon Carbide (SiC) substrates. While there is certainly reason to be concerned about China’s dominance of the semiconductor industry writ-large, these initial focus areas are worthy of special attention, especially SiC.
When it comes to government intervention and trade policy, the adage that “less is more” proves true more often than naught. Countries don’t trade; people do. When governments get involved, they add friction.
However, upholding national security is a vital function of government, and every policy position must consider genuine concerns about how our country will be able to protect its interests. China’s efforts to monopolize the global semiconductor market and upstream inputs poses a real and imminent national security threat and therefore warrants trade remedies to prevent the Chinese government from subverting the United States’ strategic interests.
“As long as China maintains its ideology and poses a threat to the free nations of the world, reducing our dependence on China for critical chips and depriving China of advanced technology are in the national security interests of the United States,” IPI president Tom Giovanetti wrote.
Preventing China from monopolizing the legacy chip market as well as SiC substrates and wafers—which have become a preferred semiconductor base material—is necessary to secure U.S. supply chains and to “friend-shore” chip production.
Over the past six years China has nearly doubled its legacy chip production capacity, and it is on track to account for over 60% of the world’s new legacy chip capacity by 2030. It has achieved this rapid growth through significant government subsidization, which the Chinese Communist Party (CCP) leverages to deflate prices and drive competitors out of business. That said, there is a lesson for the U.S. to learn here: We were previously so focused on keeping China from taking the lead with advanced chips, that we ignored legacy chips. That was a strategic mistake. Legacy chips are critical too, and when we signaled that they weren’t a priority, China took notice. Now we really need to pay attention to chip components, and that’s where SiC comes in.
Chinese leaders understand that SiC is an increasingly vital component in chips, and the CCP has begun to target the industry with the same strategy. Chinese oversupply depressed prices for six-inch SiC wafers to about 25% below manufacturing costs and caused eight-inch SiC wafer prices to fall 50% in six months last year.
China’s targeting of SiC wafers and substrates is especially alarming since these chips are used in a wide range of military applications. Flagship U.S. defense networks—particularly radar-dependent systems, like the Aegis Missile Defense, avionics systems, and satellite programs—rely on SiC-wafer chips, which can operate in harsh conditions.
Supply-chain dependence on China could jeopardize the integrity and functionality of these (and other) defense systems. American military leaders and reports consistently identify China as the greatest threat to U.S. national security. In the event of a military or political conflict, China could cut off sales to the U.S., potentially compromising military readiness.
For these reasons, IPI encourages President Trump and his administration to implement targeted trade remedies like tariffs to protect U.S. SiC production. These tariffs can’t be limited to Chinese-made SiC; rather, they must apply to products containing it to be impactful. They should also be sufficiently strict to prevent China from skirting the rules through third countries as it has been known to do
President Trump has been firm about protecting U.S. interests. U.S. trade policy needs a bit of that tough medicine to prevent China from monopolizing the global semiconductor market and subverting America’s leadership.