China's New Semiconductor Rule: 125% Tariff on U.S.-Manufactured Chips; Texas Instruments and Intel Stocks Fall.

On April 11, 2025, the China Semiconductor Industry Association issued a notice stipulating that the origin of imported chips will be determined by where the wafers are fabricated, impacting the range of the 125% tariff on U.S.-made chips. This policy caused a drop in the stock prices of American companies like Texas Instruments and Intel, with Texas Instruments closing 6.8% lower and Intel 3.7% lower. The new regulation significantly impacts the global semiconductor supply chain and trade dynamics.

New Chip Origin Rules: Based on Wafer Fabrication Location

On April 11, the China Semiconductor Industry Association released the "Notice on the Rules for Determining the 'Origin' of Semiconductor Products." According to Order No. 122 of the General Administration of Customs of China, it clearly states that the origin of imported integrated circuit products should be based on the "four-digit tariff code change principle," specifically the wafer fabrication location. This regulation applies to all packaged or unpackaged chips, and companies must provide relevant purchase order proof materials for customs verification when importing.

The core of this new regulation is that regardless of the chip's design or packaging and testing location, as long as the wafer is produced in the United States, it is considered "Made in the USA" and will be subject to China's 125% tariff on U.S. goods. Conversely, if the chip is fabricated by foundries like TSMC or Samsung in Taiwan or South Korea, even if the design company is American, it will not be considered of U.S. origin.

125% Tariff on U.S.-Made Chips

The Chinese government recently increased tariffs on U.S. goods from 84% to 125% as a countermeasure to U.S. trade policies. The new origin determination rules are essentially to clearly define which chips will be included in this high tariff range.

According to a report by Caijing, U.S. chip companies such as Texas Instruments (TI), Analog Devices (ADI), Intel, Micron, and ON Semiconductor will be the first to bear the brunt, as most of their chips are fabricated in the U.S. Texas Instruments and ADI, in particular, will be most affected due to their analog chip products being mostly manufactured in the U.S.

A manager from a local packaging and testing company in Shanghai pointed out that this regulation equates the chip manufacturing location with the origin. For example, chips produced at TSMC are considered to have Taiwan as their origin, regardless of the design company or packaging location; chips produced in U.S. wafer fabs are still considered U.S.-made even if packaged in China or Southeast Asia.

Immediate Market Reaction: U.S. Semiconductor Stocks Plunge

Following the announcement of the new rules, U.S. semiconductor stocks saw a significant decline on April 11. Texas Instruments (TXN.US) shares fell by 10% at one point, hitting a 52-week low, and closed down 6.8%. Intel (INTC.US) shares dropped 3.7%, with an intraday decline of up to 9%. Other companies like GlobalFoundries (GFS.US) fell 3%, Micron (MU.US) dropped 2.4%, and ADI and Microchip Technology (MCHP.US) also saw declines.

In contrast, companies not affected by the new rules showed relatively stable or even rising stock prices. NVIDIA (NVDA.US) saw a 2.2% increase in its stock price because its AI chip H20 is fabricated by TSMC and is not considered U.S.-made. TSMC's ADR listed in the U.S. also rose by 3.3%. Analysts noted that this policy is beneficial for TSMC and other non-U.S. wafer foundries.

Changes in Chip Supply Chain and Customs Practices

Previously, there was some flexibility in determining the origin of chips when importing into China, with some companies even using the packaging location as the basis for declaration. With the implementation of the new rules, this flexibility has been significantly reduced. Several customs brokerage firms have stated that it is still unclear what proof materials should be prepared to seek tariff exemptions, leading some companies to suspend shipments while awaiting policy details.

According to the new rules, if chips are shipped before 12:00 on April 10, 2025, and customs clearance is completed by May 13, they can apply for tariff exemptions. However, due to incomplete past customs documentation, many companies find it difficult to prove the shipment time and wafer fabrication location, making it challenging to carry out practical operations.

An Intel distributor mentioned that second-quarter orders have been completed, with limited short-term impact, but market changes in the next three months are unpredictable. Some customers considered stockpiling but ultimately refrained due to high risks.

Overview of Affected Companies

Texas Instruments and ADI, whose analog chip products are mostly manufactured in the U.S., are the main victims of this policy. Although Intel has wafer fabs in Ireland, Israel, and Dalian, China, most of its high-end server and PC chips are still produced in the U.S., with a high dependency on the Chinese market. In 2024, Intel's revenue in China and Hong Kong reached $15.5 billion, accounting for 29% of its total revenue.

Additionally, GlobalFoundries has wafer fabs in New York and Vermont, and Micron and ON Semiconductor also have substantial U.S. manufacturing operations. These companies will face dual pressures of rising costs and demand uncertainty in the Chinese market.

References

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