China Transforms Old Chips into a Trade Tool

As the Trump administration aimed to finalize a TikTok agreement during discussions with China last weekend, Beijing was concurrently fortifying its own negotiation position. Actual chips—semiconductors—were the focus.

This past week, China introduced several regulatory measures aimed at American chip manufacturers. The most impactful is an anti-dumping investigation into American legacy chips that are integral to various products, including vehicles, refrigerators, washing machines, and data centers. While these chips, unlike advanced GPUs, typically fly under the radar, they are crucial for powering daily technology. Importantly, this is also a sector where Chinese companies have made significant advances. By claiming that American companies have been inundating the Chinese market with inexpensive legacy chips, Chinese regulators are paving the way for tariffs that could diminish the competitiveness of American goods.

In addition, antitrust measures have targeted Nvidia. China’s market regulator has publicly shared preliminary insights indicating that the company breached commitments made during its 2020 acquisition of the Israeli firm Mellanox. Shortly after, the Financial Times disclosed that the Cyberspace Administration of China instructed ByteDance and Alibaba to halt purchases of Nvidia’s latest chips. Furthermore, Beijing initiated an anti-discrimination investigation into U.S. trade and industrial practices, accusing Washington of unjustly benefiting its domestic chipmakers like Intel through CHIPS Act subsidies and tariffs.

For observers of the US-China tech conflict over the past five years, these developments seem strikingly familiar—yet reversed. Previously, Washington was the one employing various strategies to restrict China’s access to advanced semiconductors: comprehensive export controls, tariffs, investment assessments, and even personnel bans. Now, after years of a defensive stance, China is demonstrating its readiness to wield the same strategies against its primary geopolitical opponent. At the very least, the threat of investigations into American chip companies could afford Chinese representatives additional leverage to negotiate a favorable TikTok deal and tariff arrangements.

“The Chinese have always been astute observers of the US. Now we see that they possess the confidence and acumen to respond in kind,” states Dan Wang, author of Breakneck: China’s Quest to Engineer the Future and a research fellow at the Hoover Institution.

New Chips on the Table

The timing of these investigations is hardly coincidental. The US is currently in talks to keep TikTok operational in the country—and to bring it partially under American oversight. Unlike Washington, which is preoccupied with finding the best regulatory approach for the app, Beijing is less concerned about TikTok’s future. What truly matters to the Chinese government is whether it can leverage the approval of a potential deal in exchange for concessions on tariffs or export controls.

Semiconductors, becoming increasingly crucial in the political landscape, are a primary focus. “Beijing is much less interested in the fate of TikTok than in ensuring that its semiconductor industry can access the technologies essential for producing advanced semiconductors, particularly those vital for training large language models and fostering innovation in the AI sector,” explains Paul Triolo, a partner at DGA-Albright Stonebridge Group.

This week’s countermeasures indicate that Beijing has pinpointed a new leverage point: its expansive domestic market. The US successfully implemented export controls because companies in the US and its allied nations still dominate the cutting-edge technologies necessary for semiconductor production: ASML’s lithography machinery, Nvidia’s GPUs, and TSMC’s foundries. Beijing lacks a similar stranglehold, except potentially in rare-earth minerals. However, what China possesses is a vast consumer and manufacturing base. For instance, China boasts the largest automotive market globally, requiring billions of imported auto chips annually. By signaling its readiness to weaponize access to that market, it is echoing strategies from Trump’s playbook.