As part of an initiative to lower trade tension, China has eliminated its 125% retaliatory tariffs on certain US semiconductor products. This news was shared by Chinese business magazine Caijing, which suggests that there has been a change in direction for Beijing amid its trade war with Washington. As per industry insiders, the exemptions are said to include a minimum of eight integrated circuit (IC) associated tariff codes, much to the delight of US semiconductor manufacturers who have been burdened with hefty tariffs on their exports to China.

Effects on the Semiconductor Market

This exemption is particularly beneficial for the US semiconductor industry. China has an enormous demand for these products, as evidenced by the over USD 11.7 billion worth of semiconductor imports from the United States in 2024. Semiconductors are the backbone of almost every modern electronic device and are vital to both the consumer electronics and industrial segments of the economy. Even with advancements in domestic chip development, China still heavily relies on foreign chips, especially from the US and Taiwan, due to their nascent local production capabilities. China’s recent policy shift to remove tariffs on integrated circuits, with the continued high tariff on memory chips, is a clear indicator of China’s dependence on foreign suppliers for certain critical components. South Korean companies dominate the market for memory chips, which are needed for data storage, but this presents an opportunity for other US companies to enter the market.

Geopolitical and Economic Implications

In the ongoing trade war, this is considered a strategic manoeuvre by China to defend its technology domain from incurring additional expenses. The US-China dynamics and their underlying tensions can also be perceived through the prism of the exemptions. He who masters the technology industry of the future will rule the world, and semiconductors are assumed to constitute the decisive technology of the struggle. China’s action could facilitate greater collaborative trade arrangements, but whether it triggers broader de-escalation or deepened hostility is unknown.

Looking into the future, does this advance the prospect of a comprehensive trade resolution?

Even though the exemption of tariffs on US-owned semiconductors marks an initial effort toward defusing tension, the absence of a clearly defined end goal means a total resolution to the trade war is unlikely. As the United States continues to impose tariffs on Chinese imports while both parties remain locked into intricate bargaining, the semiconductor industry will continue to be an area of contention in the larger economic standoff. In the next few months, the international technology industry will closely evaluate whether the Chinese decision marks a step in the direction of a broader trade de-escalation policy or if it is merely a temporary action taken to relieve economic stress.