Legacy chips, used in everything from washing machines to cars and TVs to medical devices, may not be as powerful as the state-of-the-art semiconductors that power artificial intelligence (AI) platforms. But they're a growing headache for the United States and European Union due to China's market dominance.

Washington has already blocked Chinese firms from accessing Western-designed cutting-edge chips in the hope of delaying Beijing's ambition of becoming a technology superpower. Attention has now turned to so-called legacy chips, of which China currently has close to a third of the world's manufacturing capacity.

Faced with limited access to the more advanced chips, Beijing has sharply stepped up investments in the production of mature chip technology. In September, the Chinese government announced a $40 billion (€37 billion) state-backed investment fund to bolster domestic semiconductor production. That move strengthened industry calls for Western nations to take action to shore up their own chipmakers.

"[Current US] export controls only apply to advanced technologies, with the impact on mature technologies limited," Joanne Chiao, an analyst at the Taiwan-based chip research house TrendForce, told DW.

In December, the Biden administration ordered a review of the entire semiconductor supply chain to assess China's dominance of legacy chips. A meeting of the EU-US Trade and Technology Council, held this week in the Belgian city of Leuven, could prompt a similar review by the European Commission, the EU's executive arm.

A statement from the Council following the talks hinted at possible EU action, saying the two "may develop joint or cooperative measures to address distortionary effects on the global supply chain for legacy semiconductors."

"The pressure is on to do something, but the question is how effective would any curbs be?" semiconductor sector analyst Malcolm Penn told DW.

If China were to flood the market with legacy chips subsidized by Beijing, Western chipmakers could be quickly priced out, industry insiders warn. They point to a similar dumping of cheap Chinese solar panels that Brussels says has given the Asian powerhouse an unfair advantage.

"If companies like Lam Research and Applied Materials lose half their market permanently, they would have to downsize as they're geared up to serve a market that will grow to twice as large as it is now," Penn said, referring to two of the top US legacy chipmakers.

Over the next three years, China's legacy chip capacity is set to grow to 39% of the overall market, thanks to Beijing's subsidies, according to data by Trendforce. A separate forecast by Gavekal Dragonomics sees China adding more chip-making capacity this year than the rest of the world combined — a million more legacy chips per month than last year.

India also wants a piece of the action, which could further spur overcapacity in the chip supply chain. Indian conglomerate Tata Group is pouring $11 billion into the construction of its own chip foundry, in Dholera, Gujarat.

Taiwanese chipmakers, which currently hold nearly half of global chip production capacity, have switched focus to meet the demand for advanced chips, along with the US, South Korea and Japan. Taiwanese foundries will likely see their overall market share decline as a result of China's investment spurt, TrendForce forecast in December.

Critical dependencies are another concern. If Western chipmakers are unable to compete with their Chinese counterparts and downscale, the US and EU could become too reliant on China for the semiconductors needed in everyday consumer electronics, but also military hardware and critical infrastructure.

If it were to dominate the market, China could use economic coercion to stymie Western access to legacy chips. The effect could be worse than the COVID-era chip shortage that led to delays in deliveries of vehicles and gadgets, including the latest iPhones, blamed on the lack of legacy chips not advanced ones.

"For consumers, the importance of legacy technologies outweighs that of advanced chips like AI," Trendforce's Chiao told DW, adding that despite hogging the headlines, AI chips account for less than 1% of global semiconductor consumption.

Any loss of access to Chinese legacy chips could wreak havoc for Germany's auto producers, for example, who are already struggling with intense competition in the transition to electric vehicles.

While there's agreement that Washington and Brussels must do something, there are concerns that sanctions and other curbs could also harm Western chipmakers.

"It's the wrong solution to the right problem," Penn, the CEO of the UK-based chip consultancy Future Horizons, told DW. "Sanctions will only delay China's dominance, they won't stop it."

Penn noted how despite sanctions on Western exports to Russia following Moscow's full-scale invasion of Ukraine, exporters and Russian buyers have found workarounds through third countries.

Western countries won't be able to ramp up chip production fast enough to offset any shortage of chips from China in the event of tit-for-tat retaliation, he warned.

"If you decided to do it today [invest in more domestic production], you wouldn't see the first chips for at least three years, probably longer — even if there were no delays in building the factories and you found the people with the skills to run them," Penn explained.

While US and EU officials may consider further sanctions on China, industry insiders believe export controls are more likely on tools that aid legacy chip production. Washington and Brussels could rely on so-called friendshoring — manufacturing and sourcing from geopolitical allies, including India, to cut their reliance on China.

They may also offer further subsidies to encourage domestic foundries to build more legacy chips and survive a price war. Through the passing of two recent Chip acts, the EU and the US have already committed some $86 billion in subsidies to the semiconductor sector over the next decade.