US Proposes Ban on Chinese Chips in Federal Contracts
The US government has released a proposed Federal Acquisition Rule that would restrict federal agencies from buying products or services containing certain Chinese-made semiconductors. The move is a direct response to ongoing US-China technological decoupling and aims to mitigate supply chain and national security risks. The rule signals a continued push toward regulatory fragmentation, increasing compliance burdens for multinational companies.
- This rule specifically targets semiconductors from three major Chinese manufacturers: Semiconductor Manufacturing International Corporation (SMIC), ChangXin Memory Technologies (CXMT), and Yangtze Memory Technologies Corp (YMTC), along with their subsidiaries and affiliates. The ban extends beyond just the chips to include products that incorporate them and services that use such products. - The prohibition is set to take effect on December 23, 2027, a five-year implementation period intended to give companies time to identify and secure alternative sources for these components. The public comment period for the proposed rule is scheduled to end on April 20, 2026. - This action is a direct implementation of Section 5949 of the National Defense Authorization Act (NDAA) for Fiscal Year 2023. The policy is modeled after a similar ban on telecommunications equipment from certain Chinese manufacturers that was implemented in 2019. - Contractors will be required to conduct a "reasonable inquiry" to ensure their supply chains are free of the banned semiconductors and to certify their compliance. If a banned component is discovered post-award, contractors must report it to the contracting officer within 72 hours. - The estimated compliance costs for the U.S. government and industry are substantial, projected to be over $1 billion over a ten-year period. These costs are associated with supply chain diligence, redesigning products, and sourcing alternative components. - This procurement ban is part of a larger U.S. strategy to counter China's role in the global technology ecosystem, which also includes the CHIPS and Science Act. The CHIPS Act provides approximately $52.7 billion in federal subsidies to boost domestic semiconductor manufacturing and research. - The rule includes potential waivers that can be granted by the head of an executive agency if no compliant product is available at a reasonable market price, provided it does not compromise national security. However, based on similar past bans, these waivers are expected to be used sparingly. - The China Semiconductor Industry Association has publicly condemned the U.S. CHIPS and Science Act, stating that it violates fair and open trade principles and will inevitably lead to disruptions in the global semiconductor supply chain.
