Chinese-sourced polysilicon is the next threat to U.S. security

OPINION:

The Trump administration secured a significant national security win last month by negotiating a one-year pause on Chinese export controls on rare earth elements. China currently dominates the global supply chain for rare earths, which are vital to manufacturing automobiles, defense systems and other key products.

The administration now has a critical opportunity to address an even greater emerging threat to U.S. national security by moving quickly to ban imports of polysilicon sourced from China.

Polysilicon is used in solar energy technologies, and in a higher-purity form, it is fundamental to the manufacture of semiconductor chips required for military, energy and telecommunications systems, as well as artificial intelligence data centers.

In 2014, China enacted duties on U.S. solar-grade polysilicon, effectively closing its solar market to U.S. firms. Since then, China has turbo-boosted its domestic solar-grade polysilicon producers through massive subsidies and slave labor from the Uyghur population in Xinjiang province. This is commingled with polysilicon from the rest of China.

China has deliberately created a significant glut in the global solar-grade polysilicon market. Chinese-sourced polysilicon is sold for just 20% of the minimum sustainable price as determined by the U.S. Department of Energy’s National Renewable Energy Laboratory.

The production costs to U.S. producers and trusted Group of Seven partners are several times greater than the current selling price of finished Chinese-sourced polysilicon. China’s cut-rate pricing is designed to bankrupt domestic and G7-aligned polysilicon producers, ultimately driving them out of business.

According to a recent report on this issue from the Information Technology & Innovation Foundation, China’s tactics appear to be effective.

Per the Information Technology & Innovation Foundation, multiple U.S. and G7 companies have announced closures or slowed expansion plans in the face of Chinese market manipulation. Wolfspeed, a leading U.S. silicon carbide producer, closed two U.S. fabrication facilities and postponed expansion at its Germany fab in 2024. In June, the firm filed for bankruptcy related to unfair Chinese competition. REC Silicon, a U.S.-based, Norway-listed producer, halted its polysilicon production in the United States because of low prices, closing facilities in Montana and Washington.

Meanwhile, China continues to expand production and is investing in foreign expansion in Africa, Asia and the Middle East, including via a massive polysilicon facility soon to come online in Oman. Once online, polysilicon production at the Chinese-linked Oman facility will put further downward pressure on global prices, thereby increasing financial pressure on G7 producers, including the United States.

China is also likely to use unfair trade practices to circumvent any U.S. trade measures designed to level the playing field against China-origin and China-linked polysilicon producers worldwide. As a result, foreign solar producers in nations such as Malaysia, Korea and India will reap profits by buying cheap Chinese polysilicon rather than paying a fair price for polysilicon from G7 producers. In other words, they will use the same playbook for a different strategic material.

China cannot yet produce semiconductor-grade polysilicon in material amounts. Still, if China can drive U.S. and G7-aligned producers out of the business by undercutting the price of solar-grade polysilicon, it is only a matter of time before China leads global semiconductor-grade polysilicon, which will create a serious vulnerability in AI stack and technology supply chains.

As the United States strives to reshore and secure production of critical technologies and materials such as semiconductors and rare earth magnets, it is vitally important that we protect the supply of polysilicon for our national security.

The good news is that the Trump administration has taken necessary initial steps, with the support of key congressional leaders. On July 1, the commerce secretary initiated an investigation under Section 232 to assess the impact of imports of polysilicon and its derivatives on U.S. national security. This investigation must be fast-tracked for reasons that should be all too clear.

Accordingly, if the Trump administration decides to impose remedies under Section 232, it should strongly consider prohibiting the importation of polysilicon of Chinese origin and polysilicon linked to China, as well as its derivatives.

At the same time, the U.S. should ensure duty-free imports of polysilicon from trusted G7 allies to meet the rising demand for energy and technologies powered by semiconductors, such as those used in AI.

Only by denying Chinese polysilicon producers access to the U.S. market, whether directly from China or from third countries, will the Trump administration successfully protect U.S. polysilicon production and safeguard the semiconductor supply chain.

• David Sauer is a retired senior CIA officer who served as chief of station and deputy chief of station in multiple overseas command positions in East Asia and South Asia. All statements of fact, opinion or analysis expressed are those of the author and do not reflect the official positions or views of the U.S. government. Nothing in the contents should be construed as asserting or implying U.S. government authentication of information or endorsement of the author’s views.