LOS ANGELES — President Donald Trump’s plans to revise federal chipmaker contracts and impose new tariffs on the semiconductor industry could hinder U.S. technological advancement, despite his commitment to fostering artificial intelligence research.
Since his presidency began, Trump has advocated for tariffs on foreign-made computer chips and semiconductors to revitalize domestic chip manufacturing. He and Republican lawmakers have also threatened to dismantle the CHIPS and Science Act, a Biden administration initiative aimed at boosting domestic chip production.
However, economists warn that Trump’s approach could impede, or even damage, the administration’s objective of maintaining U.S. competitiveness in AI research.
Saikat Chaudhuri, a corporate growth and innovation expert at UC Berkeley’s Haas School of Business, finds Trump’s criticism of the CHIPS Act surprising, given that chip production is a major bottleneck for AI progress. Many nations, Chaudhuri notes, are actively promoting chip production and favorable import rates.
“The chip shortage impacted various sectors, from AI to automobiles,” he explained. “During the pandemic, cars incorporated fewer or less powerful chips to manage supply limitations.”
The Biden administration enacted the law in response to supply disruptions following the COVID-19 pandemic. These disruptions, causing chip shortages that stalled factory production and fueled inflation, threatened a U.S. recession. Lawmakers also expressed concerns about China’s attempts to control Taiwan, a major producer of advanced computer chips.
As of the report’s writing, the CHIPS and Science Act had allocated $30 billion to 23 projects across 15 states, creating 115,000 manufacturing and construction jobs, according to the Commerce Department. This funding attracted private investment, enabling the U.S. to produce 30% of the world’s most advanced computer chips, a significant increase from 0% at the end of Trump’s first term.
The administration pledged tens of billions of dollars to build U.S. chip foundries and reduce reliance on Asian suppliers, viewed as a security risk. In August, the Commerce Department committed up to $6.6 billion for Taiwan Semiconductor Manufacturing Co. (TSMC) to expand its Arizona facilities, ensuring domestic production of advanced microchips for the first time.
Trump, however, contends that companies like TSMC did not require government funding to prioritize U.S. chip production.
“They needed an incentive. And the incentive is going to be they’re not going to want to pay at 25, 50 or even 100% tax,” Trump stated.
TSMC held its first U.S. board meetings last week. Trump indicated that companies must build plants in the U.S. without government assistance to avoid tariffs. Taiwan also sent senior economic officials to Washington to negotiate with the Trump administration to potentially avert a threatened 100% tariff on chips.
Chaudhuri warned that tariffs would immediately increase prices of goods using semiconductors and chips, as higher costs are generally passed to consumers.
“From smartphones and gaming devices to smart refrigerators and car features, almost everything uses chips,” he noted. “Consumers will bear the brunt. Manufacturers won’t absorb those costs.”
Even tech giants like Nvidia will eventually face difficulties, despite currently having high enough margins to absorb some costs.
“They will all be negatively impacted,” he said. “Only countries implementing CHIPS Act-like initiatives will benefit.”
Brett House, a Columbia Business School professor, described broadly based tariffs as detrimental to the U.S. economy. Tariffs would increase costs for businesses and households, significantly increasing the cost of high-powered chips for the U.S. AI sector.
“Simultaneously dismantling or threatening the CHIPS Act and imposing broad tariffs on AI and other computer technology imports would severely cripple the industry,” House stated.
Such tariffs would undermine the domestic chip-building sector, creating uncertainty about future investments. This would discourage new capital allocation to the U.S. industry while increasing the cost of imported chips.
“American technological leadership has always relied on open global markets, immigration, and labor flows,” he added. “Restricting this openness has never been a successful strategy for America.”
—Associated Press writers Josh Boak and Didi Tang in Washington contributed to this report.