Commerce Department Commissions Survey of U.S. Companies to Create Trusted Legacy Chip Supply

Secretary Raimondo and her team have closed out 2023 with welcome action to stem the tide of a China-dominated legacy space.

In early December, China Tech Threat commended the Commerce Department for directing the first allocation of CHIPS Act funding to support domestic production of semiconductors. Then, on December 21, the Commerce Department announced that it would commission a survey asking U.S. companies to report how they source legacy chips—the chips which are essential to the functioning of virtually every single electronic device. “Legacy chips are essential to supporting critical U.S. industries, like telecommunications, automotive and the defense industrial base. Addressing non-market actions by foreign governments that threaten the U.S. legacy chip supply chain is a matter of national security,” said Secretary Gina Raimondo.

Hear, hear. China continues to spend billions of dollars subsidizing would-be state champions like SMIC in hopes of making the world dependent on Chinese chips. If the U.S. becomes dependent on Chinese legacy chip producers, then the supply of electronic components for U.S. military technology could dry up completely. U.S. consumers would be at risk of the kind of supply chain chaos that roiled the economy during the pandemic. And China could leverage chip supplies as a geopolitical bargaining chip, causing severe economic pain. As one professor at Peking University has theorized, “If China were to capture a major share of the world’s market for mature process chips, it would also gain a ‘bargaining position’: If the U.S. were to block 20 percent of advanced process products, we would reciprocate by blocking 80 percent of mature process products.”

Of course, the problem won’t be fixed through a single survey. But the data collected will be useful to, in the words of the Secretary Raimondo, “empower[ing] the Department with the data we need to inform our next steps in building strong, diverse, and resilient semiconductor supply chains.” Hopefully those next steps will include a continued apportion of CHIPS Act funding to U.S.-based legacy chip producers.

The Commerce Department also needs to get serious about tightening export controls to shut down the flow of semiconductor manufacturing equipment that Chinese legacy chip producers depend on. Two recent stories suggest that well-intentioned export controls are failing to curb Chinese advances at both the advanced and legacy levels. The South China Morning post has reported that CXMT may have recently made a major breakthrough in cutting-edge Gate-All-Around technology, despite U.S. sanctions.  And Reuters has detailed how Brite Semiconductor, a SMIC-financed upstart providing chips to the Chinese military, has received investments from American companies such as Wells Fargo, Synopsys, and Cadence Design. Although these companies are not technically violating any U.S. laws, the relationships expose the numerous loopholes in the current U.S. strategy to deny China technological capabilities that threaten the U.S. “Brite is a classic example of how a US-China joint venture could end up funneling valuable semiconductor technology to SMIC and the PLA,” said Martijn Rasser of the Center for a New American Security.

The ultimate solution is for Congress to pass much tougher legislation reforming BIS and the entire U.S. export control system. A recent report from the House Committee on the Chinese Communist Party contains a bevy of good recommendations toward that end, including a call to, “require the Department of Commerce to adopt ‘country-wide’ controls for specific technologies going to foreign adversaries, regardless of end-use or end-user, and establish a ‘policy of denial’ for export licenses for items with “National Security” (NS) controls.” Indeed, adopting such a policy is urgent. As Rep. Brian Mast of Florida has recently noted, “Despite the fact that Beijing continues to steal American technology, BIS continues to approve more than 90 percent of commercial licenses that CCP-affiliated entities apply for.” That statistic suggests a culture of failure within the export control bureaucracy. We agree with Rep. Mast: “The Biden Administration needs to be using every tool available to keep American technology out of the hands of the Chinese Communist Party.”