This morning, the Office of the U.S. Trade Representative (USTR) announced the results of its investigation into semiconductors from the People’s Republic of China under Section 301 of the Trade Act of 1974. USTR found certain of China’s acts, policies, and practices to be unreasonable and burden or restrict U.S. commerce. However, USTR has not acted to impose additional tariffs at this time. Instead, USTR has pledged to monitor the situation and reconsider the need for and amount of additional tariffs no later than May 2027.
Section 301 Investigation
During the Biden Administration, USTR self-initiated a Section 301 investigation into “PRC manufacturing of foundational semiconductors (also known as legacy or mature node semiconductors), including to the extent that they are incorporated as components into downstream products for critical industries like defense, automotive, medical devices, aerospace, telecommunications, and power generation and the electrical grid,” as well as the PRC’s “production of silicon carbide substrates (or other wafers used as inputs into semiconductor fabrication).” Public comments were submitted between January and February of 2025, and USTR held a public hearing in March.
USTR’s Findings
The statute provides USTR twelve months within which to complete its Section 301 investigation and determine a course of action, if any. Today’s notice comes at the end of that statutory period, and identifies several acts, policies, and practices of China that USTR considers unreasonable, as well as resulting burdens or restrictions on U.S. commerce.
In particular, the unreasonable acts, policies, and practices identified by USTR include:
- Exercising “extraordinary control” over the semiconductor industry by China and the Chinese Communist Party to achieve dominance and funneling non-market advantages to China’s semiconductor supply chain;
- Depriving market-oriented businesses of commercial opportunity by pursuing dominance without regard for market competition; and
- Creating and exploiting harmful dependencies in foreign competitors and purchasers, including in the realm of critical minerals used in semiconductor production.
USTR found the following burdens or restrictions on U.S. commerce to stem from these policies:
- Undercutting business opportunities for and investments in the U.S. semiconductor supply chain; and
- Creating economic security risks from dependence and vulnerabilities in sectors critical to the functioning of the U.S. economy, including a “capacity and willingness to weaponize and vulnerabilities through economic coercion.”
A Course of Action Largely Deferred
Although USTR’s findings are relatively clear, the agency’s course of action is largely forward-looking. This may be related to the fact that, in contrast to USTR actions in connection with certain other Section 301 investigations, this notice does not indicate that the President directed USTR to act in any particular way.
Today, no new or additional tariffs have been announced; rather, USTR states that it “will continue to monitor the efficacy of this action, the progress made toward resolution of this matter, and the need for any additional action.” The “monitor for now” approach adopted in this investigation resembles the outcome of the investigation of automobile imports under Section 232 of the Trade Expansion Act of 1962, which later yielded the current tariff regime for those products.
In this case, however, USTR has already established a default timeline for “increasing” the 0% additional tariff. The rate of increase will be announced no later than May 24, 2027, and enter into effect on June 23, 2027. As a general matter, once USTR has taken action pursuant to Section 301, the statute provides USTR with authority to modify existing action on an ongoing basis under certain circumstances. Thus, the announced timeline may be altered.
Clarifying the Scope of “Semiconductor”
When USTR initiated this investigation, it did not identify which HTSUS subheadings it considered to fall within the investigation’s scope. Today’s notice includes a list of eighteen 8-digit HTSUS subheadings deemed “semiconductors” for purposes of this Section 301 investigation. This list is limited, relative to the broad swathe of downstream products potentially under consideration as “semiconductors” under the pending investigation under Section 232 of the Trade Expansion Act of 1962.
In addition, the list of “semiconductor” articles created for purposes of this Section 301 investigation matches the list of semiconductor articles that have been subject to a 50% tariff since January 1, 2025, pursuant to the Section 301 investigation of China’s acts, policies, and practices related to intellectual property, as described in Note 31(f) of HTSUS Ch.99. One HTSUS subheading (4015.12.10) appears in Note 31(f) but not on today’s Section 301 notice. However, this HTSUS subheading covers rubber gloves used for medical purposes, rather than semiconductor articles. It is scheduled to be removed from the Note 31(f) list, effective January 1, 2026.
Conclusion
The attorneys, licensed customs brokers, compliance professionals, economists, and trade specialists of Cassidy Levy Kent regularly assist companies in evaluating their supply chains to ensure compliant market access and adjust for tariff-related developments, including Section 301 tariffs, both mitigating burdens and taking advantage of opportunities. Businesses should be aware of the possible outcomes when planning or reviewing their supply chains.