Commentary: Why China’s Semiconductor Sector May Win the Tariff War

The trade war between the U.S. and China, ignited by Washington's 34% reciprocal tariff and reacted upon by Beijing with an identical tariff on U.S. goods, stands to significantly affect China's semiconductor industry. President Trump threatened an additional 50% tariff, indicating an escalation in tensions that will drive significant economic changes. A crucial question is the classification of U.S.-origin products, essential in the tariff war context. Current regulations determine a product's origin based on its last substantial transformation, even though much semiconductor value is internationally distributed. Importers may need detailed documentation to trace origin, and particular product lists from Commerce and Customs Departments could face additional tariffs. Special zones and trade policies might exempt some chips from tariffs based on product substitutability and market urgency [para. 1][para. 2][para. 3][para. 4][para. 5].

The semiconductor sector in China might benefit overall due to this trade war, especially in upstream segments like equipment and components. Key areas expected to gain are non-U.S. mobile phone chips like MediaTek, which already captures a sizable market in China, and mature-node domestic chips poised to replace U.S. products. Moreover, domestic PC and AI chips may overcome market barriers, although performance enhancements are necessary for success, as tariffs alone may not suffice. Despite limited direct exports to the U.S., the impact on China's semiconductor exports remains minimal [para. 6][para. 7][para. 8][para. 9].

Reflecting on this scenario, the tariff war epitomizes the prolonged U.S.-China tech and trade conflict. The U.S., aiming to revive domestic manufacturing, has little room for negotiating these tariffs, seeking to restrict foreign competition to make domestic production viable. Consequently, any major overseas production base offering cheaper goods could render U.S. products uncompetitive. The U.S. intends to build a market internally sustainable without foreign competition, potentially at the expense of international manufacturing hubs like China [10A][10B].

The diversification of supply sources might accelerate China's de-Americanization of supply chains, increasing the competitiveness of non-U.S. products in the market. If China, alongside regional partners, establishes low-tariff markets, it could facilitate a shift away from U.S. dominance, potentially attracting global tech firms. Aligning with Japan, South Korea, and Europe, China may break U.S. monopoly on semiconductors, necessitating a strategic response from the U.S [10C].

However, challenges persist for China's semiconductor sector, given the U.S. supremacy in high-end chips and consumer electronics brands. As a leading sector in U.S. manufacturing competitiveness, any full-scale tariff war could pressurize China's related industries, compressing its semiconductor market. Nevertheless, China's established semiconductor supply chain, resilience, and past experience indicate the ability to withstand tariff shocks [10D][10E].

The uncertain duration of Trump's tariffs hinges on their impact on U.S. inflation, with political implications during upcoming elections. Amid these trade conflicts, a significant rearrangement of global order appears imminent, expecting prolonged challenges before achieving potential stabilization in the future [10F][para. 11].