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itif.org

700 K Street NW Suite 600

Washington, DC 20001

COMMENTS OF ITIF

to the

Department of Commerce Bureau of Industry and Security

Washington, D.C.

In the Matter of:

Notice of Request for Public Comments on

Section 232 National Security Investigation

of Imports of Semiconductors and

Semiconductor Manufacturing Equipment

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Docket No. 250414-0066

May 7, 2025

itif.org

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ITIF is an independent 501(c)(3) nonprofit, nonpartisan research and educational institute that has

been recognized repeatedly as the world’s leading think tank for science and technology policy. ITIF

focuses on a host of critical issues at the intersection of technological innovation and public policy—

including economic issues related to innovation, productivity, and competitiveness; technology

issues in the areas of information technology and data, broadband telecommunications, advanced

manufacturing, life sciences, and clean energy; and overarching policy tools related to public

investment, regulation, antitrust, taxes, and trade. ITIF’s goal is to provide policymakers with high-

quality information, analysis, and actionable recommendations they can trust. To that end, ITIF

adheres to a high standard of research integrity with an internal code of ethics grounded in analytical

rigor, original thinking, policy pragmatism, and editorial independence.

ITIF is pleased to offer these comments in response to the Department of Commerce Bureau of

Industry and Security Request for Public Comments on Section 232 National Security Investigation

of Imports of Semiconductors and Semiconductor Manufacturing Equipment (SME).

(i) the current and projected demand for semiconductors (including as embedded in downstream products)

and SME in the United States, differentiated by product type and node size;

Semiconductors represent the heartbeat of the modern global digital economy, a $627 billion

industry in 2024 that stimulates another $7 trillion in global economic activity annually by

underpinning a range of downstream applications such as artificila intelligence (AI) and big data.1

Analysts have expeteded the semiconductor sector to grow to a $1 trillion industry by the end of this

decade, likely at a compound annual growth rate of 7.5 percent between 2025 and 2030.2

However, the possible U.S. implementation of semiconductor tariffs have disrupted some of these

forecasts. According to TechInsights, their baseline global semiconductor sector growth model for

2025 was 9 percent, taking global semiconductor sales from $181billioninQ12025to$199 billion

by Q4 2025. However, TechInsights predicts the introduction of moderate (i.e., potential 25

percent tariffs) to severe (i.e. potential 100 percent) tariffs could lead to as much as a -20 percent

growth rate for the sector in 2025, a potential nearly 30 percent negative swing that could

potentially knock off some $250to$300 billion of global semicondutor sales for 2025. (See figure 1.)

1 Semiconductor Industry Association, “Global Semiconductor Sales Increase 19.1% in 2024; Double-Digit Growth

Projected in 2025,” news release, February 7, 2025, https://www.semiconductors.org/global-semiconductor-sales-

increase-19-1-in-2024-double-digit-growth-projected-in-2025/; Oxford Economics, “Enabling the Hyperconnected Age:

The role of semiconductors” (Oxford Economics, 2013), 20, http://www.semismatter.com/enabling-the-

hyperconnected-age-the-role-of-semiconductors/.

2 Jeroen Kusters et al., “2025 global semiconductor industry outlook” (Deloitte, February 4, 2025),

https://www2.deloitte.com/us/en/insights/industry/technology/technology-media-telecom-outlooks/semiconductor-

industry-outlook.html.

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Figure 1: Potential impact of tariffs on global semiconductor sales in 2025****3

(ii) the extent to which domestic production of semiconductors can or is expected to be able to meet domestic

demand at each node size for each product type, and similarly the extent to which domestic production of SME

can or is expected to be able to meet domestic demand;

The United States still accounts for over half (50.2 percent) of market share in the global semiconductor

industry (when all facets of the sector, from research and development (R&D), to design, to manufacturing,

to tooling, and assembly, test, and packaging (ATP) are considered).4 However, the U.S. share of global

semiconductor manufacturing has fallen considerably in recent years. In 1990, the United States

manufactured 37 percent of the world’s semiconductor chips; by 2022 that share had fallen to 10 percent, a

relative decline of over 70 percent.5

In 2022, the United States accounted for an estimated 20 percent of global 10–22 nanometer (nm) logic chip

production and 10 percent of legacy logic chip (chips greater than 28 nm) production, but virtually no

advanced chip production (chips manufactured using process nodes 10 nm or smaller).6 In 2022, the United

States accounted for 14 percent of global discrete, analog, and optoelectronics (DAO) chip production and it

accounted for 3 percent of global DRAM memory chip production (a share expected to triple to 9 percent by

2032).7

3 TechInsights, “Trump’s Tariff Tensions: What’s in store for the Semiconductor Industry?” (Webinar, May 1, 2025).

4 Semiconductor Industry Association (SIA), “2024 Factbook” (SIA, 2024), 3, https://www.semiconductors.org/wp-

content/uploads/2024/05/SIA-2024-Factbook.pdf.

5 Antonio Varas et al., “Government Incentives and U.S. Competitiveness in Semiconductor Manufacturing” (SIA and

Boston Consulting Group, September 2020), 7, https://www.bcg.com/en-us/publications/2020/incentives-and-

competitiveness-in-semiconductor-manufacturing.

6 Raj Varadarajan et al. “Emerging Resilience in the Semiconductor Supply Chain” (Boston Consulting Group, May

2024), https://www.bcg.com/publications/2024/emerging-resilience-in-semiconductor-supply-chain.

7 Ibid.

April Forecast

Moderate Impact

Severe Impact

$0

$50B

$100B

$150B

$200B

$250B

Q1 2025

Q2 2025

Q3 2025

Q4 2025

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Since 2022, private enterprises have announced $450 billion in semiconductor and electronics industry

investment, including plans to launch 17 new semiconductor fabs in the United States.8 If these investments

are fully executed, it could help to bring U.S. production of the most-sophisticated chips to nearly 30 percent

by 2032 and to bring the U.S. share of global chip production to 14 percent or higher by that time.9

(iii) the role of foreign fabrication and assembly, test and packaging facilities in meeting United States

semiconductors demand, and similarly the role of foreign supply of SME in meeting domestic demand;

The United States houses less than 3 percent of global semiconductor ATP capacity by revenue.10 The space is

dominated by China and Taiwan. As of 2021, China accounted for 27 percent (134) of the world's 484 ATP

facilities. By contrast North America had only 65 such facilities. (See figure 2.) By August 2023, Chinese ATP

firms commanded 38 percent of the market, with the five largest OSAT players—JCET, HT-Tech, TF,

LCSP, Chippacking—all being Chinese.11

Figure 2: Number of ATP facilities per country/region, 2021****12

8 SIA, “Semiconductor Supply Chain Investments,” March 7, 2025, https://www.semiconductors.org/chip-supply-chain-

investments/.

9 Varadarajan et al. “Emerging Resilience in the Semiconductor Supply Chain.”

10 The Trump White House, “Another Historic Investment Secured Under President Trump,” news release, March 3,

2025, https://www.whitehouse.gov/articles/2025/03/another-historic-investment-secured-under-president-trump/.

11 Chris Miller and David Talbot, “Mexico’s Microchip Advantage,” Foreign Affairs, August 28, 2023,

https://www.foreignaffairs.com/mexico/mexicos-microchip-advantage-semiconductor-china; Stephen Ezell, “Assessing

the Dominican Republic’s Readiness to Play a Greater Role in Global Semiconductor and PCB Value Chains” (ITIF,

January 2024), https://itif.org/publications/2024/01/29/dr-semiconductor-readiness/.

12 Akhil Thadani and Gregory C. Allen, “Mapping the Semiconductor Supply Chain” (Center for Strategic and

International Studies, May 2023), 11, https://www.csis.org/analysis/mapping-semiconductor-supply-chain-critical-role-

indo-pacific-region.

0

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40

60

80

100

120

140

160

Rest of World

China

Taiwan

Souheast Asia

North America

Japan

South Korea

IDM

OSAT

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(v) the impact of foreign government subsidies and unfair trade practices on United States semiconductor and

SME industry competitiveness

China is the world’s leading purveyor of mercantilsit economic pracrices, something which attains across

virtually every advanced-technology industry, not the least of which is semiconductors.13 Indeed,

semiconductors represent a central part of Jinping’s “pledge to mobilize all means at [China’s] disposal to

wrest technological supremacy from the United States and other nations.”14

The National IC Plan became the centerpiece of China’s semiconductor strategy in 2014, with China’s State

Council setting a goal of China becoming a global leader in all segments of the semiconductor industry by

2030.15 In 2015, China released its “Made in China 2025” (MIC 2025) strategy, which refined some of these

targets, setting a goal of achieving 40 percent self-sufficiency in semiconductors by 2020 and 70 percent by

2025.16 (In reality, China is likely to only achieve 30 percent self-sufficiency by the end of 2025.)17

Nevertheless, the IC Plan called for at least $150 billion in government subsidies—from central, provincial,

and municipal Chinese governments as well as a variety of state-owned enterprises (SOEs, from the

technology sector and beyond)—to enable China to become self-sufficient in every facet of the industry.18

The “Big Fund” was established to function as a national investment fund, offering targeted support for the

development of the semiconductor industry.19 The 2014 fund raised 138.7 billion RMB ($23 billion) and the

2019 fund raised 200 billion RMB ($29 billion). In September 2023, Reuters reported that China is planning

to start its most extensive state fund to date, with a target of 300 billion RMB ($41 billion).20 America’s

Department of Commerce estimates China has indeed reached its goal of pumping $150 billion into the

13 Robert D. Atkinson, “Innovation Drag: China’s Economic Impact on Developed Nations” (ITIF, January 2020),

https://itif.org/publications/2020/01/06/innovation-drag-chinas-economic-impact-developed-nations/.

14 Mackenzie Hawkins, “China Urges EV Makers to Buy Local Chips as US Clash Deepens,” Bloomberg, March 15,

2024, https://www.bloomberg.com/news/articles/2024-03-15/china-urges-byd-ev-makers-to-buy-chinese-chips-as-

tensions-with-us-escalate.

15 James A. Lewis, “Learning the Superior Techniques of the Barbarians” (Center for Strategic and International Studies,

January 2019), 2, https://csis-website-prod.s3.amazonaws.com/s3fs-public/publication/190115_

Lewis_Semiconductor_v6.pdf.

16 Andrew David et al., “Foundational Fabs: China’s Use of Non-Market Policies to Expand Its Role in the

Semiconductor Supply Chain” (Silverado Policy Accelerators, October 2023), 15, https://silverado.org/news/report-

foundational-fabs-chinas-use-of-non-market-policies/.

17 Michael Schuman, “China Is Losing the Chip War,” The Atlantic, June 6, 2024,

https://www.theatlantic.com/international/archive/2024/06/china-microchip-technology-competition/678612/.

18 Robert D. Atkinson, Nigel Cory, and Stephen Ezell, “Stopping China’s Mercantilism: A Doctrine of Constructive,

Alliance-Backed Confrontation” (ITIF, March 2017), 15, https://itif.org/publications/2017/03/16/stopping-chinas-

mercantilism-doctrine-constructive-alliance-backed.

19 David et al., “Foundational Fabs,” 15.

20 Julie Zhu, “Exclusive: China to launch $40 billion state fund to boost chip industry,” Reuters, September 5, 2023,

https://www.reuters.com/technology/china-launch-new-40-bln-state-fund-boost-chip-industry-sources-say-2023-09-05/.

itif.org

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sector over the past decade.21 Renowned semiconductor industry analyst Chris Miller suggested on a recent

podcast that, if one adds up semiconductor-sector investments made by Chinese governments at all levels

(national, provincial, city), China “has probably invested the equivalent of [America’s] CHIPS Act virtually

every year since 2014.”22

Massive industrial subsidization of Chinese semiconductor firms lays at the core of China’s project. As the

Organization for Economic Cooperation and Development (OECD) has found, “Government support

through below-market equity appears to be particularly large in the semiconductor industry and concentrated

in one jurisdiction.”23 The OECD’s study of 21 international semiconductor firms over the years 2014 to

2018 found that government support provided through “below-market equity” (i.e., effectively a subsidy)

“amounted to $5-15 billion for just six semiconductor firms, four of which are from China” (these being Hua

Hong, JCET, SMIC, and Tsinghua Unigroup). The report continued to note that, for SMIC and Tsinghua

Unigroup, “total government support exceeded 30 percent of their annual consolidated revenue.”24 In total,

the OECD found that Chinese firms together received 86 percent of below-market equity injections

identified in its study. The organization concluded that, “For the four Chinese firms covered by this study,

government funds have committed equity funding of about $22 billion in total to date, with the largest share

benefitting SMIC and Tsinghua Unigroup, and their subsidiaries. These four firms received about $10 billion

of the initial $23 billion tranche of National IC Plan funding.”25 With regard to SMIC, the OECD report

found that state subsidies accounted for slightly over 40 percent of the company’s revenues from 2014 to

2018.26 Of particular import, the OECD study found that there “notably appears to be a direct connection

between equity injections by China’s government funds and the construction of new semiconductor fabs in

the country.”27

When it comes to state subsidies at the firm level—that is, as a percentage of revenue for semiconductor

manufacturers (from 2014 to 2018)—Chinese enterprises clearly led their foreign competitors, by an order of

magnitude. State subsidies accounted for slightly over 40 percent of SMIC’s revenues over this period, 30

percent for Tsinghua Unigroup, and 22 percent for Hua Hong. (See figure 3.) In contrast, this figure was

minimal for TSMC, Intel, and Samsung, each, for whom revenues identifiable as state subsidies accounted

for, at most, 3 percent or less of their revenues over that period.

21 “China is quietly reducing its reliance on foreign chip technology,” The Economist, February 13, 2024,

https://www.economist.com/business/2024/02/13/china-is-quietly-reducing-its-reliance-on-foreign-chip-technology.

22 “Silicon Supremacy,” Financial Times (podcast), https://www.ft.com/content/7bf0f79b-dea7-49fa-8253-

f678d5acd64a.

23 Organization for Economic Cooperation and Development (OECD), “Measuring distortions in international markets:

The semiconductor value chain” (OECD, November 2019), 8, https://www.oecd-ilibrary.org/docserver/8fe4491d-

en.pdf.

24 Ibid.

25 Ibid., 77.

26 Dan Wang, “A Bumpier Road to Semiconductor Supremacy,” Gravel Dragonomics, July 14, 2020.

27 OECD, “Measuring distortions in international markets: The semiconductor value chain,” 9.

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Figure 3: State subsidies as a percentage of revenue for chip fabs, 2014–2018****28

Chinese semiconductor companies also benefit from lower taxes, such as corporate income tax exemptions or

reductions, tax credits for R&D, and tax or tariff reductions/exemptions for domestically produced or

imported equipment and materials.29 Subnational governments in China also sell land to Chinese

semiconductor companies at reduced prices.30

As noted, in the seminal Made in China 2025 strategy, China set a goal of achieving 40 percent self-

sufficiency in semiconductors by 2020 and 70 percent by 2025.31 China’s “Information Innovation” project,

locally called xinchuang, aims to replace foreign with domestic suppliers of critical ICTs, including

semiconductor technology.32 As one report noted, China is seeking “to establish production processes largely

free of Western equipment…This will be a multistage, multiyear process, starting with 40 nanometers and

proceeding quickly, likely this year [2024], to 28 nanometers, and then 14, 12/10, and eventually 7

nanometers.”33 On April 12, 2024, The Wall Street Journal reported that, “China’s push to replace foreign

technology is now focused on cutting American chip makers out of the country’s telecommunications

28 Saif M. Khan and Carrick Flynn, “Maintaining China’s Dependence on Democracies for Advanced Computer Chips”

(Brookings Global China in Partnership With the Center for Security and Emerging Technology, April 2020), 7,

https://www.brookings.edu/research/maintaining-chinas-dependence-on-democracies-for-advanced-computer-chips/.

Citing: OECD, “Measuring distortions in international markets: The semiconductor value chain,” 84.

29 David et al., “Foundational Fabs,” 14.

30 Ibid.

31 Ibid., 15.

32 “China is quietly reducing its reliance on foreign chip technology,” The Economist.

33 Paul Triolo, “A New Era for the Chinese Semiconductor Industry: Beijing Responds to Export Controls” American

Affairs Vol. VIII, No. 1 (Spring 2024): 38, https://americanaffairsjournal.org/2024/02/a-new-era-for-the-chinese-

semiconductor-industry-beijing-responds-to-export-controls/.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

SMIC (China)

Tsinghua Unigroup (China)

Hua Hong (China)

TSMC (Taiwan)

Intel (U.S.)

Samsung (South Korea)

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systems.”34 The move would impact a variety of U.S. semiconductor companies, including AMD and Intel.

The article noted that, “[Chinese] officials earlier this year directed the nation’s largest telecom carriers to

phase out foreign processors that are core to their networks by 2027.”35 The effort is similar to one articulated

in Document 79, which requires state-owned enterprises (SOEs) in finance, energy, and other sectors to

replace foreign software in their information technology (IT) systems by 2027.36

Elsewhere, the Chinese government has asked electric-vehicle makers from BYD Co. to Geely Automobile

Holdings Ltd. to sharply increase their purchases from local auto chipmakers, part of a campaign to reduce

reliance on Western imports and boost China’s domestic semiconductor industry.37 China’s Ministry of

Industry and Information Technology (MITI) has directly instructed [Chinese automakers] to avoid foreign

semiconductors if at all possible.38 Such measures leave no doubt that import substitution and achieving self-

sufficiency represents an essential goal of China’s semiconductor strategy.

The Chinese government has sponsored “long-running state espionage programs targeting Western firms and

research centers (and this) technological espionage has carried over into cyberspace.”39 Indeed, the acquisition

of foreign semiconductor technology through intellectual property (IP) theft has been a key pillar of Chinese

strategy. For instance, in November 2018, the U.S. Department of Justice charged China’s Fujian Jinhua

Integrated Circuit Co. with working to steal trade secrets from U.S. chipmaker Micron Technologies.40 The

incident spurred the U.S. Department of Justice (DoJ) to launch a new initiative to combat foreign economic

espionage and trade secret theft. That effort yielded results when, in June 2020, DoJ found Chinese national

Hao Zhang guilty of economic espionage and theft of trade secrets from both Avago, a California-based

developer of sem ...