Legal, policy and trade moves shaping global chip flows

The global semiconductor sector remains at the forefront of a complex and intensifying interplay of legal, policy, and trade maneuvers, as governments and corporations navigate the increasingly politicized and fragmented flows of critical chip technologies. Recent developments underscore a multi-layered strategy by key actors, combining judicial scrutiny, export controls, and industrial policy to shape semiconductor supply chains amid geopolitical tensions and shifting economic realities. This evolving landscape highlights the sector’s pivotal role in national security and economic competitiveness, while exposing the growing challenges of balancing openness, innovation, and control in a fractured global ecosystem.

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Europe’s Legal Vanguard: Nexperia Probe Sets Strategic Precedents

Europe continues to sharpen its legal toolkit in semiconductor governance, with the Dutch court investigation into Nexperia standing as a landmark case in judicial oversight of foreign-owned chip firms operating on the continent. The probe, focusing on alleged governance failures and strategic mismanagement under the auspices of the Chinese-controlled company, reflects Europe’s intent to wield judicial mechanisms alongside regulatory frameworks to defend technological sovereignty.

A senior Dutch official recently remarked:

“Ensuring the stability and security of our semiconductor supply chains requires a nuanced approach—balancing openness to investment with rigorous oversight to prevent undue foreign influence in critical technologies.”

The outcome of this investigation is poised to establish pivotal legal benchmarks for cross-border investment governance in sensitive technology sectors, signaling Europe’s ambition to develop sophisticated frameworks that protect its semiconductor ecosystem without entirely deterring foreign capital inflows.

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United States: Expanding Export Controls, Enforcement Gaps, and Policy Continuity

The United States continues to escalate its semiconductor policy arsenal against China, with recent actions reinforcing a comprehensive “tech wall” aimed at constraining Chinese access to advanced chip technologies:

• Expanded export controls on AI chips: The U.S. government has broadened restrictions to include NVIDIA’s latest H200 AI chips, supplementing prior bans on the H100 and other advanced accelerators. These controls seek to limit China’s capabilities in military and surveillance applications reliant on cutting-edge semiconductors.

• Enforcement challenges spotlighted by DeepSeek: The revelation that Chinese AI startup DeepSeek trained AI models using NVIDIA chips despite export bans exposes persistent enforcement vulnerabilities. This incident highlights the complexities firms face in compliance and the difficulties authorities encounter in fully blocking unauthorized technology transfers.

• Pentagon’s recalibrated PLA-linked company list: In a notable policy adjustment, the Department of Defense removed several major Chinese firms—including Alibaba, BYD, and Baidu—from its list of entities allegedly linked to the People’s Liberation Army. This update reflects a more nuanced understanding of China’s corporate structures and the need to balance security concerns with economic and diplomatic factors.

• Tariff policy continuity under Greer: Complementing export controls and investment screening, the Biden administration has signaled continued adherence to existing tariff levels on Chinese goods, maintaining rates in the 35% to 50% range. As articulated by trade official Greer, this signals a sustained, multi-pronged approach combining tariffs with technology controls to shape semiconductor supply chains and broader trade relations with China.

• Bipartisan legislative momentum: Congressional discussions continue to advance a dual-track strategy that pairs stringent export controls and investment reviews with selective tariff carve-outs, aimed at protecting U.S. semiconductor innovation and supply chain resilience while managing sensitive technology flows.

Together, these measures form a layered and sustained policy framework designed to curb China’s semiconductor ambitions while safeguarding U.S. technological leadership.

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China’s Dual-Track Response: Diplomatic Appeals and Industrial Scaling Amid Persistent Bottlenecks

China remains steadfast in employing a dual-track approach that combines diplomatic engagement with aggressive domestic scaling of semiconductor capacity:

• Calls to de-politicize supply chain governance: Chinese trade officials consistently urge global partners to refrain from politicizing export controls and legal interventions, warning that such actions threaten the global semiconductor ecosystem’s interdependence and innovation vitality. A Chinese trade delegate stated:

  “Unilateral export controls and politicized legal actions threaten the global semiconductor ecosystem’s interdependence, innovation capacity, and market stability.”

• Industrial scaling of advanced chip output: Reports from Nikkei confirm that China’s leading foundries, including SMIC and Hua Hong Semiconductor, are planning significant expansions in advanced node chip production. This reflects Beijing’s strategic drive to enhance technological self-reliance despite external restrictions.

• Capital market mobilization via IPOs: On the investment front, CXMT Corp, a prominent domestic memory chip manufacturer, is actively preparing an IPO with support from state-owned banks China International Capital Corporation and CSC Financial. This move highlights China’s efforts to broaden financial access to fuel semiconductor innovation and capacity growth.

• Persistent wafer-fab-equipment (WFE) bottlenecks: Despite progress, China continues to face critical shortages in manufacturing advanced chipmaking tools. Reuters reporting confirms that local procurement mandates have not closed the gap, underscoring the enduring effectiveness of U.S. export controls targeting this strategic chokepoint.

• Enforcement vulnerabilities illuminated: The DeepSeek incident further exposes systemic enforcement challenges, raising questions about the durability of existing controls and the imperative for enhanced compliance mechanisms within China’s semiconductor ecosystem.

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Emerging Players and Capital Flows Signal Ecosystem Diversification

Beyond the dominant geopolitical actors, the semiconductor sector is witnessing notable diversification, fueled by new entrants and growing investor interest:

• Montage Technology: The Hong Kong-listed fabless chip design firm has seen its stock price double recently, reflecting strong investor confidence in semiconductor design innovation outside traditional manufacturing hubs.

• Nexchip Semiconductor: The Shanghai-based pure-play 12-inch wafer foundry is preparing an H-share listing targeting up to US$550 million in funding, signaling robust market appetite for expanding domestic manufacturing capacity in China.

• CXMT’s IPO preparations further exemplify how domestic players are leveraging capital markets to support scaling in advanced memory chip production.

These developments suggest a broadening of technological and financial capabilities beyond entrenched centers, potentially reducing overreliance on China-centric supply chains and contributing to a more fragmented yet resilient global semiconductor ecosystem.

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Strategic Implications: Fragmentation, Enforcement, and Governance Complexity

The cumulative impact of these developments is reshaping the semiconductor industry along several critical dimensions:

• Accelerated geopolitical fragmentation: Legal probes like the Nexperia case, expanded U.S. export controls, and investment screening policies are driving segmentation of supply chains into distinct geopolitical blocs, challenging the notion of a seamless global semiconductor ecosystem.

• Rising compliance and enforcement risks: Firms with Chinese affiliations or operations in sensitive jurisdictions face increasing legal uncertainties and regulatory complexities, complicating cross-border technology collaboration and transfers.

• WFE remains a strategic chokepoint: U.S. export controls on advanced chipmaking equipment continue to serve as a critical barrier to China’s technological self-sufficiency, reinforcing divergent technological trajectories between China and Western countries.

• Balancing security and economic interdependence: The globalized semiconductor industry clashes with national security priorities, compelling policymakers to manage a delicate balance that entails potential cost increases, supply chain disruptions, and slower innovation diffusion.

• Dynamic governance frameworks: The Pentagon’s recent updates to the PLA-linked company lists exemplify the evolving and contested nature of regulatory mechanisms, striving to reconcile security imperatives with economic and diplomatic realities.

• Policy toolkit continuity: The reaffirmation of tariffs by U.S. trade officials complements export controls and screening measures, signaling a durable and multi-faceted approach to shaping semiconductor supply chains vis-à-vis China.

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Current Status and Outlook

• The Dutch court investigation into Nexperia remains a pivotal case for Europe’s strategic judicial oversight of foreign investment in critical technologies, with potential ripple effects on continental semiconductor governance.

• In the United States, bipartisan momentum continues to strengthen export controls and investment screening, while enforcement gaps—highlighted by the DeepSeek case—underscore ongoing challenges in fully preventing unauthorized technology transfers.

• China’s dual-track strategy endures, combining diplomatic calls to depoliticize controls with ambitious industrial scaling and expanded capital market access, even as wafer-fab-equipment bottlenecks persist.

• The rise of emerging semiconductor firms like Montage Technology, Nexchip Semiconductor, and CXMT signals ongoing ecosystem diversification, reflecting broader capital inflows and technological capability expansion.

• Trade policy continuity, as signaled by Greer’s confirmation of sustained tariffs on Chinese goods, reinforces the broad and layered policy toolkit—export controls, investment screening, and tariffs—employed to shape semiconductor flows.

In sum, the semiconductor sector stands at a critical inflection point, where intensified legal scrutiny, evolving export controls, and strategic industrial scaling are accelerating the regionalization and politicization of global chip flows. Navigating this fragmented and contested terrain demands sophisticated governance, innovative policy calibration, and strategic agility from governments, companies, and investors alike.