China’s latest round of retaliatory tariffs on U.S.-origin goods officially took effect at 12:00 p.m. on April 10. One of the biggest concerns for the semiconductor industry is how “origin” and “U.S.” are defined. Industry observers have raised several key questions：
What if a U.S. chip company is headquartered outside the U.S.? Would its chips still be considered U.S.-origin?
What about U.S.-headquartered companies whose chips are fabricated in Taiwan and packaged in Southeast Asia—do those count as U.S.-origin chips?
Some more imaginative observers have even wondered: could a chip be rerouted through a third country or be partially assembled elsewhere to bypass the tariffs?
Today, the China Semiconductor Industry Association issued a formal notice clarifying the rules for determining the origin of semiconductor products. According to the announcement:
“Under the relevant rules for non-preferential origin, the origin of 'integrated circuits' shall be determined based on the four-digit tariff code transformation principle—that is, the place of wafer fabrication (fab) determines the origin.”
The notice further recommends that, for both packaged and unpackaged integrated circuits, customs declarations should list the location of the wafer fab as the country of origin.
This clarification has notable implications. Most U.S. fabless companies outsource wafer fabrication outside the United States, and even most U.S.-based IDM (Integrated Device Manufacturer) companies operate fabs overseas. As a result, many chips designed by U.S. companies but fabricated abroad are not considered U.S.-origin and thus can avoid the new tariffs.
Some analysts have noted that if China truly wanted to impose tariffs specifically targeting U.S. chips, it could consider where the value is added across different parts of the semiconductor supply chain, or where the profits ultimately flow. However, for now, China is maintaining the pre-trade-war standard for origin determination—a flexible move that reflects the country’s need to keep its electronics exports competitive globally. At the same time, the current rule subtly pressures the U.S. semiconductor industry, as it may encourage more U.S. chip design and equipment firms to shift manufacturing out of the U.S. to avoid Chinese tariffs.
While U.S.-designed chips can largely bypass the tariffs due to this globalized “U.S.+” layout, U.S.-made semiconductor equipment may face more direct impact. Although leading U.S. equipment makers have more than 20 plants across Asia and Europe, about 60–70% of their production still comes from U.S. headquarters. Therefore, while some equipment may avoid tariffs, a significant portion will not.
Meanwhile, the EU is still in negotiations with the U.S. over reciprocal tariff removal. If Washington refuses to lift its tariffs on European goods, Europe may retaliate, not only with counter-tariffs but also by raising taxes on U.S. digital services. If Europe joins China in such countermeasures, and a prolonged global tariff war unfolds, U.S. semiconductor equipment makers may be forced—like fabless and IDM firms—to expand production capacity outside the U.S. to stay competitive.
This would lead to an ironic outcome: Trump’s tariffs may not bring manufacturing back to the U.S., but instead accelerate the trend of U.S. chip and equipment production moving abroad.
1. Regulations of the People's Republic of China on the Place of Origin of Imported and Exported Goods
Article 3: Goods that are wholly obtained or produced in one country (or region) shall be considered as originating from that country (or region). If two or more countries (or regions) are involved in the production of a good, the country (or region) where the last substantial transformation took place shall be regarded as the place of origin.
Article 6: The standard for determining “substantial transformation” as mentioned in Article 3 of these Regulations shall primarily be based on a change in tariff classification. Where a change in tariff classification does not sufficiently reflect a substantial transformation, ad valorem percentage and specific manufacturing or processing operations may be used as supplementary criteria. Specific standards are to be formulated by the General Administration of Customs in coordination with the Ministry of Commerce.
The term “change in tariff classification” refers to a situation where materials not originating in the country (or region) undergo manufacturing or processing in that country (or region), resulting in a change in classification under a certain level of the Customs Import and Export Tariff of the People's Republic of China.
The term “ad valorem percentage” refers to the proportion of value added through manufacturing or processing within a country (or region), calculated as a percentage of the total value of the finished product.
The term “specific manufacturing or processing operations” refers to key operations carried out in a country (or region) that give the product its essential characteristics.
2. Provisions on the Criteria for Substantial Transformation in Non-Preferential Rules of Origin
This document provides supplementary definitions, technical annexes, and sector-specific guidelines on how substantial transformation is assessed under non-preferential origin rules, expanding on Article 6 of the above regulation. It includes:
Specific thresholds for ad valorem content in different product categories,
Accepted processing steps considered as substantial transformation,
and the levels (e.g., 4-digit, 6-digit HS code) at which tariff shifts are considered valid.
These rules are particularly relevant for assessing the origin of products like semiconductors, electronics, and machinery in the context of tariffs, trade remedies, and customs declarations.
🎯 Impacts on China’s Semiconductor Industry
Setting aside the broader economic consequences of the tariff war, its sector-specific impact on semiconductors appears net positive for China, especially for upstream segments like equipment and components. The farther upstream, the greater the potential benefits.
1. U.S. smartphone chips may be partially replaced.
While U.S. companies remain strong in mobile SoCs, alternatives are increasingly viable. By 2024, MediaTek already captured nearly 40% of the high-end Android phone chip market in mainland China. U.S. chipmakers may lose market share as tariffs reinforce the trend toward localization. Apple, which designs its own chips, may be hit hardest. Most of its manufacturing is in mainland China, Vietnam, and India—now caught in the middle of the tariff war. Apple’s recent stock decline, and drops across its supply chain, reflect this vulnerability.
2. Mature-node domestic chips will accelerate U.S. chip substitution.
China’s mature-node chip production has progressed rapidly. In areas like automotive MCUs, power devices, memory, and mid-to-low-end basebands, local players now have real competitive capabilities. Although mainly in the low-to-mid-end segments, their cost advantage and localization are squeezing U.S. suppliers. Tariffs give these products an additional edge, speeding up replacement of U.S. chips in related domains.
3. Domestic PC and AI chips may break through market recognition barriers. Chinese CPUs and GPUs have made 0-to-1 breakthroughs, though performance still lags behind U.S. mainstream consumer chips. Today’s domestic PCs can handle basic office tasks (WPS, browsers) without issues, but still fall short in more complex functions. With tariffs raising the price of U.S. chips, domestic PCs may gain market share and finally break through existing bottlenecks. Of course, real breakthrough depends on performance, not just tariffs.
4. China’s chip exports to the U.S. are limited and mostly outside general trade.
China’s semiconductor exports to the U.S. are already small in volume and primarily occur via special customs-supervised zones and processing trade, with minimal general trade involvement. Therefore, the overall impact of U.S. tariffs on China’s chip exports is likely to be modest.
