The United States has initiated an investigation into China’s semiconductor industry, accusing the country of using anti-competitive measures to bolster its dominance in the global chip market.

The U.S. Trade Representative’s (USTR) office confirmed on Monday that it would be probing China’s acts, policies, and practices related to its semiconductor industry, particularly its efforts to dominate the sector through non-market tactics. The investigation will be conducted under Section 301 of the U.S. Trade Act and will focus initially on "foundational" semiconductors—those used in industries such as automotive, healthcare, infrastructure, aerospace, and defense.

The probe is expected to add further strain to the already tense trade relations between the two largest economies in the world, with the potential for significant disruptions to global supply chains. The USTR’s accusation centers on China’s alleged extensive use of “anti-competitive and non-market means,” including setting market share targets, in a bid to achieve self-sufficiency and indigenization in semiconductor manufacturing. These tactics, the USTR claims, are part of China’s strategy to dominate both its domestic market and the global semiconductor industry.

This investigation signals a shift in U.S. strategy. Previously, the U.S. targeted China’s most advanced chip manufacturing technologies, such as those required for artificial intelligence (AI) applications. However, this new inquiry will examine the production of "legacy" semiconductors—those chips that are not cutting-edge but are crucial for everyday electronic products like cars, household appliances, and consumer devices.

Despite facing restrictions on the sale of advanced chip-making equipment, such as those produced by ASML, China has been making significant strides in ramping up the production of legacy semiconductors. Chinese chipmakers are reportedly on track to double their manufacturing capacity by the end of the decade, largely due to state subsidies. This growth has already begun to exert pricing pressure on U.S. chip suppliers, with a recent report from the U.S. Department of Commerce noting that China’s increased production of mature-node semiconductors is weakening the competitive position of American companies.

In response to the investigation, China’s commerce ministry issued a statement strongly opposing the U.S. probe. The ministry warned that that China would take “all necessary measures” to defend its rights in the semiconductor sector. Beijing pointed out that U.S. companies already dominate the global chip market and that the U.S. government has provided substantial subsidies to its domestic chip industry.

In retaliation, China has taken countermeasures, including banning the shipment of key minerals and metals to the U.S. that are essential for chip production. Additionally, Beijing opened an investigation into U.S. chipmaker Nvidia for alleged anti-competitive practices, further exacerbating the trade tensions between the two nations.