1. Background and Specifics of the Legislation
According to reports from multiple media outlets including Reuters, this bipartisan legislation was jointly proposed in the House of Representatives by Republican Congressman Jay Obernolte and Democratic Congresswoman Zoe Lofgren. A Senate version is also being developed by bipartisan senators, including Senator Mark Kelly and Marsha Blackburn.
The legislation primarily prohibits companies receiving CHIPS Act subsidies from purchasing Chinese-manufactured semiconductor manufacturing equipment for a period of 10 years. This equipment ranges widely, covering everything from advanced photolithography machines (used for critical technologies such as extreme ultraviolet lithography) to basic yet essential processing equipment like silicon wafer cutting and chip slicing.
However, the legislation is not entirely rigid: it includes exemptions for certain special circumstances. If a type of equipment cannot be produced in the United States or its allies, the U.S. government may consider granting an exemption; moreover, this ban only applies to businesses operating domestically in the U.S. and does not restrict these subsidized companies from purchasing Chinese-manufactured equipment overseas (in other countries).
2. Relationship with the CHIPS Act
To understand this new proposal, one must return to the CHIPS Act itself. In 2022, the U.S. Congress passed the CHIPS and Science Act, investing billions of dollars in subsidies for the semiconductor manufacturing industry, aimed at revitalizing domestic wafer fabs, enhancing supply chain resilience, and reducing dependence on external sources (especially from strategically competitive countries).
When the CHIPS Act was initially passed, the U.S. set numerous guardrail policies. For instance, beneficiaries of the subsidies were explicitly required to accept restrictions when investing in countries with “national security concerns” (such as China and Russia). This new legislation from Congress is a reinforcement of these guardrails.
3. Motivations and Strategic Intent
So, why are U.S. lawmakers proposing such a stricter provision at this time? There are multiple considerations behind this:
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National Security Concerns Some U.S. lawmakers are worried that China’s ambitions in the semiconductor manufacturing equipment sector are continuously strengthening. According to background information provided by the bill’s sponsors, China’s investment in chip equipment has exceeded $40 billion, and its market share in equipment is steadily increasing. The concern in the U.S. is that if subsidized companies continue to procure critical manufacturing equipment from China, their technology and capabilities may indirectly benefit Chinese industries, posing potential risks to U.S. long-term strategic interests.
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Consolidating the Position of Domestic High-End Equipment Manufacturers Domestic chip equipment manufacturers in the U.S. (such as Applied Materials, Lam Research, and KLA) support this legislation. For these manufacturers, prohibiting subsidized companies from purchasing equipment from China means they have a greater opportunity to secure orders, thereby avoiding long-term direct competition with Chinese equipment suppliers.
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Export Controls and Subsidy Combination Strategy U.S. export controls on Chinese products have always been a crucial part of its technology strategy. Combined with subsidy restrictions, this new legislation adds “guardrails” at the subsidy policy level to prevent subsidy funds from being used to enhance Chinese industrial capabilities. Lawmakers are also focusing on equipment procurement from other countries considered strategic risks (such as Iran, Russia, and North Korea).
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Maintaining Technological and Industrial Autonomy Restricting subsidized companies from purchasing Chinese equipment helps to shape a relatively closed but controllable high-end technology ecosystem. The U.S. is pushing for further localization of its high-end semiconductor supply chain, which, in the long run, can enhance its technological autonomy and supply chain resilience.
4. Potential Impacts and Controversies
If this legislation is passed, it will have widespread impacts on the industry chain and will also spark various controversies.
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Pressure on U.S. Subsidized Companies For those companies receiving subsidies from the CHIPS Act and wishing to use Chinese equipment during their factory construction or expansion, this is a very stringent constraint. Even if U.S. equipment manufacturers cannot provide certain types of equipment, they will still need to go through the exemption mechanism to procure, which may lead to complex negotiations and uncertainties in practice.
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Potential Supply Chain Tightening for Equipment Although the U.S. has strong equipment manufacturers, not all types and generations of equipment can be completely replaced by Chinese equipment in the short term. If the relevant exemptions are not flexible enough, it may cause anxiety among subsidized parties regarding equipment sources, potentially delaying production plans.
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Deepening International Relations and Technological Decoupling This approach is another manifestation of the technology decoupling strategy. For China, this undoubtedly serves as a further restriction on its equipment exports and technology diffusion, and from a broader perspective, the competition between the U.S. and China in the semiconductor field will become more intense due to the combination of subsidies and regulations.
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Compliance Costs and Exemption Mechanisms Although the legislation includes exemption clauses, applying for exemptions and assessing whether conditions are met will increase compliance costs for companies. Beneficiaries of the subsidies will also need to consider long-term strategic layouts: whether to insist on purchasing U.S. or allied equipment or to apply for exemptions to buy Chinese products, both present operational decision challenges.
Source: Compiled from the internet, for communication and learning purposes only, please delete if infringing.
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