LOS ANGELES — Despite President Donald Trump’s commitment to advance artificial intelligence (AI) research in the United States, his intentions to reshape federal contracts with semiconductor manufacturers and impose new tariffs on the industry could potentially hinder technological progress.
Upon taking office, Trump has indicated a desire to impose tariffs on overseas production of computer chips and semiconductors, aiming to rejuvenate chip manufacturing domestically. Additionally, there have been threats from the president and Republican legislators to dismantle the CHIPS and Science Act—legislation from the Biden administration designed to enhance domestic semiconductor production.
Economic analysts have signaled that Trump’s mixed strategy could detract from the overarching goal of maintaining the U.S.’s competitive position in AI development. Saikat Chaudhuri, an expert on innovation at the University of California, Berkeley, expressed surprise at Trump’s criticism of the CHIPS Act, noting that chip production remains a significant obstacle in AI advancement. He emphasized that other countries are prioritizing the encouragement of chip manufacturing and favorable import rates for chips.
“The impact of the semiconductor shortage has reverberated across various sectors, from automotive to AI,” Chaudhuri remarked. “During the pandemic, auto manufacturers faced challenges due to limited or less powerful chips, forcing them to navigate supply chain constraints.”
The Biden administration facilitated the CHIPS Act in response to supply chain disruptions caused by the COVID-19 pandemic. The lack of chips had halted manufacturing processes and contributed to inflation, risking a recession in the U.S. Lawmakers were also motivated by concerns surrounding China’s ambitions to exert influence over Taiwan, which produces over 90% of advanced computer chips.
By August 2024, the CHIPS and Science Act had allocated $30 billion in support of 23 initiatives across 15 states, projected to create 115,000 jobs in manufacturing and construction. This funding has attracted private investment and aims to increase U.S. production of advanced computer chips to 30%, a significant increase from the 0% when the Biden-Harris administration took over from Trump’s tenure.
The administration committed substantial funding to establish American chip foundries and reduce dependency on suppliers from Asia, which are perceived as potential national security vulnerabilities. Recently, the Commerce Department announced its intent to provide up to $6.6 billion for the expansion of Taiwan Semiconductor Manufacturing Company’s facilities in Arizona, intending for the U.S. to produce its most advanced microchips domestically.
However, Trump claimed companies engaging in federal contracts, such as TSMC, supposedly did not require financial aid but rather an incentive to prioritize U.S. chip production. He argued, “Incentives will stem from tax implications, as these companies will not want to face tax rates of 25%, 50%, or even 100%.”
In a notable event last week, TSMC held its board meetings in the U.S. Trump has indicated that businesses must establish manufacturing plants domestically to avoid tariffs, which could be as high as 100%. To mitigate these developments, Taiwan sent high-ranking economic officials to Washington to discuss potential tariff implications with the Trump administration.
Economic expert Chaudhuri warned that the implementation of tariffs could lead to increased prices for consumer goods reliant on semiconductors, as businesses often pass tariff-related costs to customers. “Whether it’s your smartphone, gaming devices, or smart appliances, almost everything we use contains a chip,” he noted. “For consumers, this adjustment will be quite challenging, as manufacturers won’t absorb these costs.”
He also pointed out that even well-established tech companies like Nvidia would eventually face adverse impacts from tariffs, despite their current ability to absorb some cost increases. “This will negatively affect all players in the industry,” he stated. “The only beneficiaries will be countries that adopt similar measures to the CHIPS Act.”
Brett House, a professor at Columbia Business School, asserted that broad tariffs would harm the U.S. economy by raising prices for businesses and consumers alike. He remarked that for the AI sector, tariffs would particularly inflate costs for critical components like high-powered chips from overseas. “If the CHIPS Act is repealed while broad-based tariffs are enacted on AI and related technology imports, it would severely undermine the industry,” he explained.
These tariffs could curtail the development of a domestic chip manufacturing industry, creating an impression of an uncertain policy landscape that would deter future investments, House noted. This, in turn, could escalate costs for imported chips while dissuading new capital influx into the U.S. semiconductor sector. He concluded, “America’s technological leadership has thrived on the openness of global markets and the flow of labor; limiting this openness has historically hampered national success.”
