China Clarifies Semiconductor Origin Amid US Trade Tensions

In the latest escalation of trade tensions between the United States and China, the China Semiconductor Industry Association (CSIA) has clarified that the country of origin for imported integrated circuits (ICs) is determined by the location of wafer fabrication, not packaging. This clarification, issued on April 11, 2025, has significant implications for U.S. semiconductor companies, particularly those that outsource manufacturing to non-U.S. locations such as Taiwan.

The CSIA's notice specifies that for all integrated circuits, whether packaged or unpackaged, the declared country of origin for import customs purposes is the location of the wafer fabrication plant. This means that U.S. firms like Qualcomm and Advanced Micro Devices (AMD), which rely on Taiwanese manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) for wafer fabrication, will see their chips classified as Taiwanese-made. Consequently, these products may avoid China's newly increased retaliatory tariffs on U.S. imports.

Conversely, companies such as Intel, Texas Instruments, Analog Devices Inc. (ADI), and ON Semiconductor, which fabricate chips within the United States, could face tariffs of 84% or more. This substantial increase may impact their pricing strategies and market share in China.

China's decision to raise tariffs on U.S. imports to 125% was a direct response to the U.S. increasing duties on Chinese goods to 145%. This escalation in trade tensions has significant implications for the semiconductor industry, given its global supply chains and the critical role of semiconductors in various sectors.

The CSIA's clarification may encourage a "China for China" strategy, where foreign semiconductor firms consider establishing or expanding manufacturing facilities within China to circumvent tariffs and better serve the local market. This approach could lead to increased foreign direct investment in China's semiconductor sector and potentially alter global supply chain dynamics.

The semiconductor industry has been at the center of U.S.-China trade tensions. In December 2024, the U.S. Trade Representative announced tariff increases under Section 301 for imports from China of certain tungsten products, wafers, and polysilicon, with rates for solar wafers and polysilicon increasing to 50% and certain tungsten products to 25%, effective January 1, 2025.

Additionally, in May 2024, President Biden announced a doubling of tariffs on Chinese semiconductors from 25% to 50% by 2025, as part of a broader set of tariff increases targeting strategic sectors.

The escalation in tariffs has led to volatility in financial markets. On April 11, 2025, Wall Street's main indexes opened lower as investors reacted to heightened trade tensions between the U.S. and China. The Dow Jones Industrial Average dropped 100.2 points (0.25%) to 39,493.42, the S&P 500 declined by 12.5 points (0.24%) to 5,255.56, and the Nasdaq Composite fell by 28.8 points (0.18%) to 16,358.53.

The current trade tensions and tariff escalations are reminiscent of previous trade disputes between the U.S. and China. However, the semiconductor industry's critical role in modern technology and national security adds a layer of complexity to the current situation. The emphasis on wafer fabrication location as the determinant for country of origin is a notable development, potentially influencing future trade policies and manufacturing decisions.

The CSIA's clarification on the country of origin for semiconductor imports underscores the intricate nature of global supply chains and the significant impact of trade policies on the industry. As U.S. and Chinese tariffs continue to escalate, semiconductor companies are compelled to reassess their manufacturing and supply chain strategies to navigate the evolving trade landscape.