Donald Trump’s incoming trade team is backing a call from the Obama administration to take a hard line on China over semiconductors, after outgoing officials likened the potential impact of Beijing’s investment in the sector to the devastation seen in the global steel industry.

At a confirmation hearing this week, Wilbur Ross, who is poised to become Mr Trump’s commerce secretary and will take a lead role on trade policy, said the Chinese were “the world’s largest consumer of semiconductors, so far mainly importing  from [the US]”. But he was “very, very concerned” about China’s own growing semiconductor sector.

Mr Ross said he had discussed the issue with Obama administration officials, who had raised concerns about China’s state-backed semiconductor sector and its potential strategic threat to the US.

Technology executives had expressed concern about China’s behaviour during a recent meeting convened by Mr Trump, he said.

The incoming administration has already promised to take a tough line on China. During the election campaign Mr Trump threatened to impose 45 per cent tariffs on Chinese imports and accused Beijing of manipulating its currency.

But the semiconductors issue highlights one area where the Obama administration is handing it a clear plan of action.

Bruce Andrews, outgoing deputy commerce secretary, warned in an interview with the Financial Times that China’s investment in its semiconductor industry posed as great a threat to the US economy as its aggressive steel and solar subsidies had.

“With the internet of things and the explosion of the digital economy, semiconductors are a foundational technology, and the United States has always had the most innovative and world-leading companies,” Mr Andrews said.

But China had established a $150bn fund to support the sector and identified it as a strategic industry, raising the pressure on US companies. The moves also raised the prospect that China would start to distort global markets, as it had when it aggressively ramped up steel production and exports, he added.

The Obama administration had raised its concerns regularly with Chinese officials in bilateral meetings over the past 18 months, Mr Andrews said.

In a report this month prepared for President Barack Obama, a commission, whose members included current and former chief executives from chipmakers such as Intel and Qualcomm, called for the US to do more to create a supportive environment for its semiconductor companies and to retain talent.

“This is not about protectionism, it is about fair competition”

-Bruce Andrews, outgoing deputy commerce secretary

It also called for the US to work with the EU and other allies to strengthen global export controls on sensitive semiconductor technologies and for continuing scrutiny of Chinese investment in the sector by the US committee on foreign investment.

On the committee’s recommendation, Mr Obama last year blocked the acquisition of German chip equipment            manufacturer Aixtron by Chinese investors.

The report was designed to provide an action plan for the incoming administration and to pre-empt any economic damage, said Mr Andrews.

“This is not about protectionism, it is about fair competition,” he said. “We need to set the circumstances so the US industry continues to be the world’s leader in terms of innovation . . . we need to make sure that all of our competitors play by the rules and don’t invest in market distorting technology.”

The concern over the semiconductor industry echoes trade battles of the past. In the 1980s the Reagan administration moved against Japan over semiconductors as part of a broader effort to stem Japanese imports. Robert Lighthizer, Mr Trump’s pick for US trade representative, was one of the US’s top negotiators at the time.

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SOURCEFinancial Times