Biden Administration Finally Acknowledges Legacy Chips; Will Action Follow Soon Enough?

Up to this point, the U.S. has been laser focused on squeezing China’s ability to acquire and manufacture advanced semiconductors. Legacy semiconductors were not in their purview. That seems to be changing as Bloomberg reports that the U.S. and Europe are now “growing alarmed by China’s rush into legacy chips.”

This encouraging development comes on the heels of comments by Commerce Secretary Gina Raimondo at a recent AEI event, where she acknowledged China’s massive investment in legacy chips, called it a problem, and said the U.S. and its allies need to get ahead of it. We’ve written extensively on the value of legacy chips, which are critical to national security and many other purposes. To put it plainly, U.S. policy shouldn’t focus exclusively on one type of chip based on nanometer size vs. another because Every Chip Matters.

As the Administration catches up, here are a couple of important points to take away from Bloomberg’s reporting:

  • The U.S. focus on advanced chips gave China plenty of runway to make big strides as it relates to legacy chip manufacturing capabilities. U.S. rules “left largely untouched the country’s ability to use techniques older than 14-nanometers. That has led Chinese firms to construct new plants faster than anywhere else in the world. They are forecast to build 26 fabs through 2026 that use 200-millimeter and 300-mm wafers, according to the trade group SEMI. That compares with 16 fabs for the Americas.”
  • China’s chip champions, like entity listed SMIC, continue to get boosts from American companies. “Heavy investments have allowed Chinese companies to keep supplying the West, despite rising tensions between Washington and Beijing. China’s chipmaking champion, Semiconductor Manufacturing International Corp., got about 20% of last year’s sales from U.S.-based clients, including Qualcomm Inc., despite being blacklisted by the American government.”

Qualcomm’s lobbying in DC alongside Intel and Nvidia for weaker export controls has rightly been described by Representative Mike Gallagher, Chairman of the Select Committee on the CCP, as an alarming move. It’s not surprising, either. American companies involved in the semiconductor business have not been shy about putting profit ahead of country. Besides lobbying, the most recent example comes from Intel’s CEO downplaying the significance of Chinese companies on the entity list while arguing for the importance of sales to the Chinese market to Intel’s bottom line. A column in The Washington Examiner hit back, calling his argument weak, greedy, and hypocritical.

It’s great that the Administration is waking up to the broader threat posed by China to the semiconductor space, and with legacy chips in particular. The U.S. has been hunting for malware that the Biden Administration believes “China has hidden deep inside the networks controlling power grids, communications systems and water supplies that feed military bases in the United States and around the world.” With this infiltration in mind, there’s every reason to think China will also use the great number of Chinese legacy chips in American military systems and critical infrastructure to undermine our national security.

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