The Semiconductor Stick: Trump’s Tariffs and the Looming US Chip War
Ninety percent of the world’s most advanced semiconductors are currently manufactured by a single company: Taiwan Semiconductor Manufacturing Co. (TSMC). That concentration of power, coupled with geopolitical tensions surrounding Taiwan, has ignited a frantic push by the US to onshore chip production. But the current administration’s strategy isn’t about building bridges – it’s wielding a very large, and potentially self-destructive, stick.
From Carrots to Clubs: A Shift in US Chip Policy
The Biden administration initially favored a strategy of incentivizing domestic chip manufacturing through the CHIPS Act, offering subsidies and tax breaks to attract investment. While progress has been made, the current approach under the Trump administration represents a stark departure. Instead of encouragement, we’re seeing a pattern of aggressive threats and demands, reminiscent of Theodore Roosevelt’s “Big Stick” diplomacy – minus the diplomacy. The administration appears less concerned with feasibility and more focused on compelling compliance, a tactic that has proven surprisingly effective in the short term.
The Intel Stake and the Tariff Threat
Last month’s $8.9 billion equity stake in Intel, funded by previously allocated CHIPS Act funds, signaled a willingness to directly intervene in the market. However, the real pressure point is the looming threat of massive tariffs on imported chips. In March, the mere suggestion of these tariffs spurred TSMC to commit $165 billion to US manufacturing. Now, the Commerce Department is reportedly considering a “1-in, 1-out” policy – requiring companies to manufacture one chip in the US for every one imported, or face tariffs potentially reaching 100%.
The Practical Challenges of Onshoring
While the intent – bolstering US economic security and reducing reliance on Taiwan – is understandable, the practical challenges are immense. Building a leading-edge wafer fab isn’t like opening a new store. It requires years of planning, billions of dollars in investment, and a highly skilled workforce. TSMC’s first Arizona facility, announced in 2020, only began ramping up production this year. Even with significant investment, TSMC estimates that only around 30% of its 2nm and smaller capacity will be located in the US for the foreseeable future.
Intel’s Opportunity and the Yield Question
Intel stands to benefit most from this shift, already operating new fabs in Arizona producing 2nm-class chips. The White House’s stake in Intel could further accelerate this trend, potentially directing foundry customers towards the US manufacturer. However, capacity and yield remain critical hurdles. Simply having the fabs isn’t enough; they need to be able to produce chips reliably and efficiently. For companies evaluating Intel’s 18A or 14A process technology, switching production lines carries significant risk and cost. Low yields could easily negate any tariff savings.
Winners and Losers in the New Landscape
Apple, Nvidia, and AMD have partially mitigated the risk by committing to TSMC’s Arizona Fab 21. But the extent of their commitment remains unclear. For everyone else, avoiding the potential tariffs will be exceedingly difficult, especially in the short term. This creates a significant competitive disadvantage for companies reliant on TSMC’s leading-edge technology. The situation is further complicated by the fact that “taping out” a new chip design on a new process node takes years and substantial investment – a barrier to entry that favors established players.
The Geopolitical Context: Taiwan and China
Underlying this entire push is the geopolitical reality of Taiwan. US officials have long warned about the potential for China to exploit the world’s dependence on Taiwanese semiconductors. While legitimate, this concern shouldn’t justify policies that could disrupt the global chip supply chain and harm the US economy. A sudden disruption could have cascading effects across numerous industries, from consumer electronics to defense.
Looking Ahead: A Delicate Balancing Act
The Trump administration’s aggressive tactics may yield short-term gains, but they also carry significant risks. A 100% tariff on chips would be economically devastating, potentially triggering a global recession. The focus should shift from coercion to collaboration, fostering a more stable and predictable environment for investment. The US needs to continue incentivizing domestic production, investing in workforce development, and strengthening partnerships with allies. Ultimately, a diversified and resilient chip supply chain is the best defense against geopolitical instability. What will be the long-term impact of these policies on innovation and competitiveness? Only time will tell.
Explore more insights on semiconductor industry trends at the Semiconductor Industry Association website.
