In December 2024, the Chinese government implemented export bans on key semiconductor materials, including gallium, germanium, and antimony. By the end of the month, the Biden administration initiated a formal trade investigation into China’s semiconductor industry.

The investigation, which will be conducted under Section 301 of the Trade Act of 1974, underscores ongoing trade and technology transfer tensions between China and the USA. The USA will look to identify unfair and unethical practices as levers to support revamping its own domestic industry. Immediately after the investigation was announced, Micron Technology announced a US$2.17Bn plan to expand its semiconductor manufacturing facility in Manassas, Virginia. The expansion project will focus on high-end materials critical for the domestic automotive, aerospace, defence, and industrial markets.

At the same time, China aims to increase the use of domestically made semiconductor chips in its rapidly growing electric vehicle (EV) industry. Currently, around 15% of chips in Chinese cars are produced locally, but this percentage is expected to rise significantly. The Chinese government has already shown its support through a US$47Bn initiative started in May 2024.

Most semiconductor chips are produced in Taiwan, with an even higher market share accounted for when looking at high-end versions. The USA is positioned as a leading high-end fabless country (companies solely focussed on semiconductor design and technology), with its designs and technology used to produce chips in Taiwan, forming a key lever in the trade war with China. Furthermore, Taiwan has regulations to protect its own technologies. Consequently, Taiwan Semiconductor Manufacturing Company (TSMC) is currently prohibited from producing 2nm chips at its overseas fabs, potentially delaying TSMC’s 2nm process production timeline in the USA. Meanwhile, China maintains a clear dominance in the raw materials needed for final manufacturing. Both China and the USA stand to be cut off from key technology sources if the political situation around Taiwan escalates, known as the “silicon shield” for Taiwan itself.

Demand for high-end semiconductors is expected to grow rapidly with the development of advanced technologies, such as sensors and power devices required for artificial intelligence and energy transition. Consequently, Project Blue expects silicon wafer shipments related to semiconductor applications to increase in 2025, growing by 3.0% y-o-y and negating the negative effects of inventory adjustments in 2024.