Saikat Chaudhuri, a specialist in corporate growth and innovation at U.C. Berkeley’s Haas School of Business, expressed surprise at Trump’s criticism of the CHIPS Act. Chaudhuri highlighted that one of the main obstacles for AI progress has been chip production. According to Chaudhuri, most countries are striving to boost chip production and facilitate chip imports at favorable rates. He emphasized the significant impact of chip shortages on various sectors such as AI and automotive industries, particularly during the pandemic when supply constraints forced cars to operate with limited or less powerful chips.
The Biden administration played a pivotal role in enacting the law in response to supply disruptions triggered by the onset of the COVID-19 pandemic. These disruptions, including chip shortages that halted factory operations and fueled inflation, posed a threat to the U.S. economy. Lawmakers were also concerned about China’s efforts to influence Taiwan, a crucial hub for advanced computer chip production accounting for over 90% of the market.
As of August 2024, the CHIPS and Science Act had allocated $30 billion to support 23 projects across 15 states, creating 115,000 new manufacturing and construction jobs, as reported by the Commerce Department. This funding attracted private investments and aimed to increase U.S. production of advanced computer chips from 0% under the previous administration to 30%. The government’s commitment to funding the construction of U.S. chip foundries aimed to reduce reliance on Asian suppliers for national security reasons.
The Commerce Department pledged $6.6 billion to support Taiwan Semiconductor Manufacturing Co.’s expansion in Arizona, ensuring domestic production of advanced microchips. Trump voiced skepticism about providing financial incentives to companies like TSMC, suggesting that the threat of high taxes might serve as a motivator for them to shift production to the U.S. Taiwan took steps to engage with the Trump administration to prevent potential tariffs on chip imports.
Chaudhuri warned that if tariffs are imposed, consumers can expect higher prices for products utilizing semiconductors and chips due to the added costs being passed down. He emphasized the ubiquitous presence of chips in modern devices, from smartphones to gaming consoles to smart appliances and vehicles, underscoring the potential impact on consumers.
“It’s going to be quite painful,” remarked the expert. He pointed out that manufacturers won’t be able to absorb the impact of the tariffs. Not even tech giants like Nvidia will be immune, despite currently having high margins that could help offset costs. “Everyone will feel the negative effects,” he emphasized. “I can’t envision anyone benefiting from this situation except for countries eager to gain a competitive edge, possibly by implementing measures akin to the CHIPS Act.”
Describing broad tariffs as a self-inflicted blow to the U.S. economy, Brett House, a professor at Columbia Business School, highlighted the repercussions. He noted that tariffs would not only increase costs for businesses and households across the board but would also drastically raise expenses for the U.S. AI sector, mainly due to the surge in costs of vital inputs like high-powered chips sourced from overseas.
“If, simultaneously, you undermine, revoke, or endanger the CHIPS Act while imposing comprehensive tariffs on AI and other computer technology imports, it would severely handicap the industry,” House warned. He explained that such tariffs would hinder the growth of a domestic chip manufacturing sector, sending a worrying signal to potential investors about the uncertain policy environment. This, in turn, would stifle new capital inflows into the U.S. industry while inflating the prices of imported chips.
House continued by underlining the historical underpinning of American technological leadership, emphasizing the importance of maintaining openness to global markets, immigration, and labor flows. He stressed that shutting down this openness has never led to success for the United States in the past.
In contributing to this report, Associated Press writers Josh Boak and Didi Tang provided valuable insights from Washington.
