U.S. President Donald Trump, like the two presidents before him, set out to revitalize the U.S. semiconductor industry. The fact that he is going about it in a way that will be wildly counterproductive seems not to bother him at all.
In a bid to bring back chipmaking to the United States, Trump has mooted the idea of tariffs as high as 100 percent on imports of the critical components, most of which come from U.S. allies in Asia, unless companies pledge to invest in domestic U.S. manufacturing.
The administration’s ongoing investigation into the national security risks from importing chips aims even wider, potentially targeting everything imported that includes chips, from toasters to smartphones. But it gets even bigger: That Section 232 investigation also targets the machines that make semiconductors, which would also make it harder to rebuild manufacturing. The investigation could conclude this month and open the door to formal tariffs, following other Section 232 cases into such critical national security threats as steel, copper, and auto parts.
But the Trump administration doesn’t just want to make it more expensive for U.S. firms to buy much-needed semiconductors. His latest move—which appears to be blatantly illegal—will make it more expensive for U.S. companies to sell advanced chips to geopolitical foes such as China by charging a 15 percent export duty on shipments of previously banned U.S. technology by firms such as Nvidia and AMD. The administration’s immediate goal with the unprecedented measure was to ensure a continued trade truce with China.
The upshot: Trump’s approach to what has become the critical industry of the modern information economy would manage to simultaneously weaken U.S. companies while strengthening one of Washington’s bitterest rivals.
“The issue we have at play now is that Trump has explicitly monetized these national security restrictions that up until recently had traditionally been in a separate bucket,” said Liza Tobin, a former China director at the National Security Council under both the Biden and first Trump administrations.
Or, as Philip Luck, who was the deputy chief economist at the State Department in the Biden administration grappling with similar dilemmas, put it: “If this is such a national security emergency, at least do it well.”
When it comes to chips, trade imperatives took a back seat to national security concerns for the past eight years. Both the Trump and Biden administrations “had been clear about this principle of not bringing it into trade negotiations, not putting it on the table with China as something we would negotiate away in exchange for something else,” said Tobin, now the managing director of the China-focused research firm Garnaut Global. “The 15 percent commission arrangement sort of explicitly blows that out of the water.”
AMD did not respond to a request for comment. A Nvidia spokesperson said in an emailed statement that the company would “follow rules the U.S. government sets for our participation in worldwide markets.”
At issue is Nvidia’s H20 chip, which was created to comply with export controls by the Biden administration but was then subject to additional export controls itself. The Trump administration initially kept those restrictions in place before abruptly reversing course this week.
Trump justified his decision on Monday by calling the H20 an “obsolete” chip that China already has alternatives to through its homegrown champion, Huawei.
“China has ample supply of domestic chips to meet its needs,” Nvidia said in a statement. “Banning the sale of H20 in China would only harm U.S. economic and technology leadership with zero national security benefit.”
That’s one argument: that keeping China dependent on U.S. chips will ensure U.S. technological supremacy.
“Where the Biden administration saw promise in degrading capabilities by controlling, this White House seems more bought into the idea that the best way to maintain dominance is exactly through dominating a foreign marketplace,” said Emily Benson, head of strategy at the geopolitical intelligence firm Minerva Technology Futures who previously served as a senior advisor to the U.S. Department of Commerce under the Biden administration.
But China has spent a decade racing to realize Made in China, a plan for domestic dominance of all emerging technologies, including chips. Some, like Tobin, worry that U.S. complacency toward export controls will only make its path to semiconductor parity with the United States easier.
“China wants to emulate that, and they’re working to do that, so the more they can squeeze out of Nvidia about how to do this stuff, build this ecosystem, the faster they’ll be able to displace Nvidia,” Tobin said.
And then there’s the inbound side of the U.S. chipmaking equation. The Biden administration, like the first Trump administration before it, sought to rebuild a U.S. semiconductor industry that once was dominant but which, as in so many manufacturing sectors, ceded leadership in recent decades to lower-cost producers in Asia.
Building on the groundwork left by the first Trump administration, Biden signed into law the CHIPS and Science Act in 2022, which offered subsidies to promote investment in U.S. chipmaking, among a host of other incentives. The idea was to recapture the critical parts of what has become the commanding heights of the digital economy, namely the ability to control the supply of components that drive artificial intelligence and many cutting-edge defense technologies.
Companies answered the call enthusiastically, investing hundreds of billions of dollars during the Biden administration to build chip factories—known as fabrication plants or “fabs”—in the United States, spurred on by over $30 billion in CHIPS Act subsidies.
Despite Trump asking Congress earlier this year to scrap the legislation, there has not been follow through. In fact, global chipmaking leader Taiwan Semiconductor Manufacturing Company (TSMC) announced an additional $100 billion investment in its U.S. operations in March, with Trump proudly touting that investment from a White House lectern.
While Trump is hardly allergic to state capitalism, he prefers tariffs to subsidies, despite evidence that inconsistent import taxes levied on U.S. businesses and consumers do little to drive capital investment.
“In the Biden administration, we were trying not to do this because tariffs are not the best tool. It’s simply going to increase the cost for everything,” said Luck, who is now the director of the economics program at the Center for Strategic and International Studies, a think tank in Washington, D.C. “If it’s about national security, you have to control the whole supply chain, and a tariff wall doesn’t solve that problem.”
It’s not just former Trump or Biden officials or economists or trade experts who are saying that, either. Nearly everybody involved in the chip business, from manufacturers to industry associations to the governments of big chipmaking countries such as Taiwan and South Korea, told the Trump administration that the proposed tariffs were a terrible and counterproductive idea in public comments during the Section 232 investigation.
“We note the imposition of tariffs on certain critical supply inputs and certain chips carry a significant risk of inadvertent but serious harm to the U.S. semiconductor industry and downstream sectors,” the Semiconductor Industry Association wrote.
“Broad tariffs or import restrictions on semiconductors, [semiconductor-making equipment], and their derivative products would likely undermine, rather than enhance, U.S. domestic production and capacity,” chimed in the Computer and Communications Industry Association.
The Korea Semiconductor Industry Association was most to the point: “Ultimately, imposing additional tariffs on critical semiconductor materials and equipment would slow progress toward the United States’ objectives of enhancing industrial competitiveness and technological leadership, while reducing the global competitiveness of U.S. companies within the global supply chain and delaying the incentives for long-term investments.”
The problem isn’t just that tariffs on semiconductors would make most products more expensive and do little to rebuild manufacturing. The problem with the Trump administration’s approach, including tariff carve-outs for companies, such as Apple, that pledge to invest in U.S. factories, or shakedown fees for chipmakers that want to keep selling abroad, is that it further undermines the administration’s already dodgy rationale for invoking national security every time it seeks to meddle in the economy.
U.S. allies in Asia, such as South Korea and Japan, or European allies such as the Netherlands, home to the critical equipment maker ASML, could be brought into a grand coalition to deal with genuine security threats from hostile-country dominance of critical technologies by coordinating export controls. But that security rationale is undermined every time the Trump administration makes an exception that puts national security behind short-term dealmaking.
“Export controls only work when they are multilateral. If national security concerns can be overcome by a 15 percent fee, you’ve lost all your partners. This is as destructive to our multilateral export control as anything I can imagine,” Luck said.