LOS ANGELES (AP) — Despite his commitment to advancing artificial intelligence research in the United States, President Donald Trump’s recent threats to modify federal contracts with chipmakers and impose new tariffs on the semiconductor industry may pose challenges for the tech sector. Since assuming office, Trump has proposed tariffs on foreign-made computer chips and semiconductors with the aim of bringing chip manufacturing back to the U.S. Additionally, the president and Republican lawmakers have raised concerns about the CHIPS and Science Act, a comprehensive law introduced during the Biden administration to bolster domestic production.
Economists caution that Trump’s strategies could impede or even undermine the administration’s objective of maintaining a competitive edge in AI research. Saikat Chaudhuri, an expert on corporate growth and innovation at U.C. Berkeley’s Haas School of Business, expressed surprise at Trump’s criticism of the CHIPS Act, noting that chip production has been a major bottleneck in AI advancement globally. Many countries are actively promoting chip production and facilitating chip imports through preferential arrangements.
Chaudhuri highlighted the impact of chip shortages on various industries, including AI and automotive, particularly during the pandemic. The Biden administration introduced the CHIPS and Science Act in response to supply disruptions caused by the COVID-19 crisis, aiming to prevent economic downturns due to chip shortages. The legislation allocated $30 billion to support 23 projects across 15 states, creating 115,000 jobs in manufacturing and construction. This initiative attracted private investments and aimed to increase U.S. production of advanced computer chips from 0% to 30%.
To reduce reliance on Asian suppliers and enhance national security, the administration pledged substantial financial support for building U.S. chip foundries. The Commerce Department committed up to $6.6 billion to assist Taiwan Semiconductor Manufacturing Co. in expanding its Arizona facilities. However, Trump believes that companies like TSMC should prioritize U.S. chip production without government assistance, warning of potential tariffs if they do not comply.
In response to these developments, TSMC held board meetings in the U.S. for the first time, signaling a willingness to consider U.S. manufacturing. Trump emphasized that companies must build plants in the U.S. to avoid tariffs, asserting that they should be incentivized by economic factors rather than government funding. Taiwan dispatched senior officials to Washington to engage with the Trump administration on these matters.
There is concern over the potential imposition of a 100% tariff by Trump on chips. If tariffs are indeed levied by the Trump administration, the immediate worry is that prices of goods utilizing semiconductors and chips will increase due to the additional costs passed on to consumers. “Whether it’s your smartphone, gaming device, smart fridge, or even the intelligent features in your car, virtually everything we use today contains a chip,” said Chaudhuri. “For consumers, this will be quite burdensome, as manufacturers will struggle to absorb these added expenses.” Even tech giants like Nvidia will not be immune to the negative impact of tariffs, despite their current high profit margins. “Everyone will be affected adversely by this,” he noted. “I foresee no beneficiaries except for countries that competitively adopt measures like the CHIPS Act.”
Brett House, a Columbia Business School professor, warned that broad tariffs would be detrimental to the U.S. economy. Such tariffs would not only drive up costs for businesses and households across the board but also significantly raise expenses for the U.S. AI sector, particularly in terms of high-powered chips imported from overseas. “If the CHIPS Act is discarded or threatened while broad tariffs on AI and other computer technologies are implemented, it would severely handicap the industry,” House explained. These tariffs would hinder the development of a domestic chip manufacturing sector and signal uncertainty for future investments, thus dampening capital inflows into the U.S. industry and increasing the cost of imported chips.
House emphasized the historical success of American technological industrial leadership, which has been underpinned by openness to global markets, immigration, and labor flows. “Restricting this openness has never been a winning strategy for America,” he concluded.
