The China-US tariff war has soared from 34% to 84%, and now stands at a staggering 125%, clearly indicating an escalation into an extreme confrontation. Among the myriad of products affected, semiconductors—a cornerstone of international trade—have borne the brunt of these increased tariffs. Recent announcements regarding new rules on origin determination and the suspension of chip quotations have further narrowed import channels for US-related chips, effectively propelling domestic chips to the frontline of this tariff battle.

01 Tariff War Sparks Chain Reactions; American Chips May Pull Out Entirely

According to the latest developments, with approval from the State Council, the tariff rate on imports originating from the United States will be hiked from 84% to 125% starting April 12, 2025. Given the current tariff levels, Chinese markets have little appetite for US goods. Should the US persist in imposing additional tariffs on Chinese exports, China has signaled its intention to disregard such measures.

Immediately following the implementation of these tariff countermeasures, the domestic semiconductor industry sprang into action. On the same day, the China Semiconductor Industry Association issued an urgent notice concerning the rules for determining the "origin" of semiconductor products. The notice emphasized adhering to General Administration of Customs regulations, specifying that the origin of "integrated circuits" is determined by a change in the four-digit tariff code, essentially designating the place of tape-out as the origin.

Notably, the association further recommended that regardless of whether the "integrated circuits" are packaged, the origin should be declared based on the location of the "wafer tape-out factory" during import and customs clearance.

This announcement sent shockwaves through the industry, with US-related chip companies collectively falling silent. "Many American chip companies have halted quoting prices for new orders. The mood is overwhelmingly pessimistic as everyone assesses the impact," revealed an insider. "Given the mounting cost burden, American chips may accelerate their retreat from the Chinese market."

Public information indicates that the current major US wafer fabs include GlobalFoundries, Intel, Micron, and Texas Instruments.

With the exception of Intel, whose production capacity is concentrated in the US, Texas Instruments' fabs are primarily located in Texas, Maine, and Utah, with a minor presence in Germany. Packaging and testing are mainly done in the US, with some operations in Malaysia, the Philippines, and Chengdu, China.

Furthermore, some of Intel's CPU and GPU products, ADI's analog chips, Broadcom's radio frequency and automotive electronic chips, Micron's DRAM and NAND chips, ON Semiconductor's power products, and Qorvo's radio frequency front-end products may be impacted by the new origin determination rules.

02 Calls for Domestic Chip Independence Intensify; Who Can Fully Meet Substitution Demand?

After years of preparation, the battle is finally upon us. Faced with the market void left by the withdrawal of American chips, it is all but certain that domestic manufacturers will step up to fill the gap.

Minsheng Securities believes that this trade dispute is qualitatively different from previous ones. It is not merely a trade friction between China and the US but a unilateral act by the US aimed at dividing the world. Strengthening confidence and increasing exposure to independently controllable configurations is now more crucial than ever. Moreover, since the 2018 trade dispute, China's semiconductor industry has made remarkable progress, and this tariff policy is expected to further accelerate domestic substitution efforts.

In terms of the domestic chip market landscape, vendors such as Loongson, Huawei, Phytium, Haiguang, Zhaoxin, and Sunway are all poised to take center stage.

The CCID Research Institute notes that both Haiguang and Zhaoxin adopt the x86 technical architecture and have obtained complete cross-patent licenses and instruction set term licenses for x86. Haiguang, in particular, possesses the full x86 instruction set code and has established a domestic C86 instruction system through the expansion of core instruction sets, offering robust security, performance, and independent iteration capabilities, positioning it as a top-tier player in the domestic CPU market.

Within the domestic ARM ecosystem, Kunpeng and Phytium have both conducted domestic self-research based on the ARM V8 architecture. Kunpeng is highly regarded by the domestic user market due to its highly integrated design and rich software product ecosystem, while Phytium, relying on its innovative security architecture, enjoys high recognition in the information technology innovation market. Currently, domestic ARM is considered a mainstream technical route, second only to x86.

Additionally, Loongson and Sunway are trusted in the government and special market sectors due to their in-depth independent research and development. Loongson has achieved performance upgrades for multiple generations of processor products based on the fully independent intellectual property right instruction system LoongArch, while Sunway has shed external technology dependence and is applied in key areas such as government and military. Both vendors are currently enhancing their ecosystem construction to expand into broader commercial markets.

Overall, these six major domestic chip products largely meet the "safe and usable" requirements for domestic substitution. With the escalation of the China-US "tariff war," domestic chips are anticipated to accelerate their large-scale implementation and shoulder the burden of domestic substitution.

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