The FT Article: How the chip war could turn under Trump
In the high-stakes arena of semiconductors, chips have become more than tools of innovation; they are now pivotal in geopolitical strategy. The U.S.-China rivalry over technology dominance shows no sign of cooling, and the potential return of Donald Trump to the presidency may turbocharge this race. For defense and high-tech industries, this shift raises crucial questions: how will tariffs, export controls, and AI-driven demand reshape global supply chains, and what does this mean for national security? The answers could define America’s technological edge in the decades to come.
Background: How We Got Here
The semiconductor race intensified during Trump’s first term as he spotlighted tech competition with China. Under his administration, policies such as tariffs, export controls, and restrictions on Chinese tech giants like Huawei came to the fore. Biden’s administration expanded on these measures, culminating in the 2022 CHIPS Act, which allocated over $50 billion to boost domestic chip production and innovation.
Yet, the U.S. faces fierce competition. China has aggressively subsidized its semiconductor sector, while the European Union has pledged significant funding for its own chip initiatives. Against this backdrop, Trump’s return may further disrupt supply chains and create new strategies, potentially reshaping partnerships with allies like Taiwan and South Korea while putting additional pressure on rivals.
Trump’s Likely Approach to Chips
1. Tariffs: A Double-Edged Sword for the Industry
Trump’s inclination to impose tariffs reshaped global electronics supply chains during his first term, pushing assembly out of China to Southeast Asia and Mexico. A potential second term might see more targeted “component tariffs,” which would tax devices based on Chinese chip content regardless of assembly location. While such measures could protect American manufacturers from subsidized competition, they risk increasing production costs, disrupting allied economies, and intensifying trade tensions.
2. Export Controls: Closing the Loopholes
The Biden administration restricted exports of AI chips and lithography tools to China, with Trump likely to double down. By targeting loopholes and expanding restrictions, his administration could limit Chinese access to critical technologies further. While allies may chafe at such unilateral measures, they often prefer these policies, allowing the U.S. to absorb Beijing's ire.
3. Recalibrating the CHIPS Act
Despite bipartisan support, the CHIPS Act has faced criticism for cumbersome labor and regulatory requirements. Trump’s campaign rhetoric suggests a shift toward streamlining processes, aligning with his history of fostering investment-friendly environments. This approach could accelerate plant construction and potentially lead to new incentives for domestic manufacturing.
4. AI and Defense: A Manhattan Project Redux?
AI-driven demand has surged, fueling investment in data centers and cutting-edge chips. Trump’s association with figures like Elon Musk underscores the likelihood of initiatives targeting AI. A focus on AI parallels historical projects like DARPA’s foundational contributions to the internet, reinforcing semiconductors as critical to defense and economic resilience.
Implications: A Turning Point for U.S. Defense and Tech Leadership
The semiconductor industry lies at the nexus of national security and economic strategy. If Trump pivots toward protectionist policies, the defense sector could benefit from greater supply chain security but face challenges adapting to new tariff regimes. Meanwhile, rivals like China may redouble efforts to achieve self-sufficiency in chip production, potentially leading to an accelerated decoupling of global supply chains.
Opportunities abound for U.S. companies. By securing CHIPS Act funding, firms can invest in domestic capabilities while exploring breakthroughs in quantum computing and AI chips. However, the industry must also navigate potential trade conflicts, regulatory hurdles, and intensified scrutiny of overseas collaborations.
Conclusion
As the chip war evolves, the stakes are monumental. For the U.S., sustaining leadership in semiconductors requires a delicate balance: advancing domestic capabilities, maintaining strategic alliances, and countering rivals without alienating partners. Policymakers and industry leaders must act decisively, leveraging opportunities for innovation while safeguarding national security. Whether or not Trump returns to the White House, one thing is certain: the battle for semiconductor dominance will define the 21st century.
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