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Your guide to what the 2024 US election means for Washington and the world
What does the return of Donald Trump mean for the worldwide chip war? Trump didn't start the subsidy race – credit goes to Chinese leader Xi Jinping – but his first administration focused the US on technology competition with China. Biden then expanded Trump-era policies on tariffs, subsidies and export controls. Now Trump is returning, just as artificial intelligence increases demand for computing power.
Tariffs are a direct focus for the chip industry. Trump's first term led to a costly supply chain restructuring within the industry, with electronics manufacturing shifting from China to Mexico and Southeast Asia. More tariffs against China are sure to come back. But some Southeast Asian countries, whose electronics exports have led to higher trade surpluses with the US, are also within the crosshairs.
But not every US chip company is against all kinds of tariffs. To protect industry segments hit by heavily subsidized Chinese competitors, Washington is considering “component tariffs” — that’s, taxing imports based not on the situation of ultimate assembly but on the components they contain. Today, a tool made in Vietnam with Chinese chips pays Vietnam's tariff rate, not China's. A component-based tariff system would goal Chinese chips no matter where final assembly takes place. Such a policy would meet Trump's desire to handle Chinese subsidies at a lower cost to businesses and consumers than through broad-based tariffs.
Export controls on U.S. corporations that offer AI chips and chip-making tools to China were one other Biden expansion of a policy initiated by Trump. It was Trump who first targeted Huawei. The Biden administration has since cut exports to over 100 corporations allegedly linked to Huawei. It was Trump who worked with the Dutch government to ban the sale of cutting-edge lithography machines to China; Biden expanded these restrictions.
Republicans in Congress have pointed to quite a few loopholes in existing export controls that the brand new administration will want to close. Allies may complain, but some quietly favor unilateral U.S. motion that spares them from having to make difficult decisions within the face of domestic pressure and Chinese retaliation. Either way, the coalition restricting technology transfer to China will remain imperfect but will hold together.
What about domestic US production? The recent departure of Intel CEO Pat Gelsinger underscores the challenges facing the corporate – central to Biden's chip strategy – despite negotiating billions of dollars in grants under the 2022 Chips Act.
During the campaign, Trump suggested that as a substitute of subsidizing chip corporations, tariffs could increase domestic production. But imposing tariffs on partners like Taiwan, whose exports to the US have skyrocketed due to Nvidia, would also harm Silicon Valley. Taiwan's leading chipmaker TSMC's investment in Arizona was announced by the primary Trump administration. It's not hard to assume one other round of investment to enhance supply chain security.
With plants under construction in several states, the Chips Act now enjoys broad bipartisan support. Republican House Speaker Mike Johnson recently came upon exactly how deep. During the election campaign, he campaigned for the repeal of the ban, sparking an internal revolt amongst Republicans. Now he guarantees to “further streamline and improve” the bill by eliminating “costly regulations.” Chip corporations which have complained about labor, child care and licensing requirements would welcome this. The latest Congress could even extend the generous investment tax credit for chip factories.
The biggest uncertainty facing the chip industry is the longer term of AI demand. Companies from Nvidia to TSMC have been buoyed by investments in AI data centers. Trump advisers say they need to speed up data center construction by streamlining permitting and boosting electricity production. The presence of Elon Musk in Trump's inner circle – whose xAI company runs one in every of the world's largest AI chip clusters – suggests that AI shall be a spotlight. Washington is abuzz with ideas for accelerating AI, from repurposing federal land to construct data centers to making a “Manhattan Project” for AI.
But the Chips Act has already created a mini-Manhattan project by allocating over $10 billion for research and development programs through the Chips Act. A big a part of it stays unused. It takes several years to construct a chip factory and even longer for the research and development to bear fruit. If the brand new Trump administration desires to reshape chip policy – and if it wants visible results inside 4 years – it had higher start soon.
