Breakingviews - Donald Trump's US chip revival is half-assembled

Reuters

5 hours ago

LONDON, June 17 (Reuters Breakingviews) - Donald Trump is hoping to secure American dominance in semiconductors over China. The president wants to bring production of chips back to the U.S., while courting allies. But success will take years and much more capital, while looming tariffs and unclear export rules add cost and confusion. When it comes to stimulating a key industry, the U.S. strategy is falling short.
For an example of how to approach state-backed industrial planning, look to China. The People's Republic has already become a powerhouse in making solar panels and batteries for electric vehicles. A decade ago, President Xi Jinping launched his 'Made in China 2025' plan with the intention of reducing the country's reliance on foreign semiconductors from 85% to around 30%. The urgency was clear: chips had overtaken oil as China's largest import. Nearly a decade later, China has not met its goal, but local capacity is ramping up. Of the 51 wafer fabrication plants currently under construction worldwide, 23 are in China, according to an industry expert. It's a direct result of government funding: state-led investment in chips has probably exceeded $150 billion since 2014, according to, opens new tab the Economist Intelligence Unit.
Little wonder that the U.S. is worrying about its dominance of advanced chips and artificial intelligence. While Huawei CEO Ren Zhengfei says, opens new tab the Chinese tech giant's chips are still one generation behind U.S. rivals, Nvidia (NVDA.O), opens new tab CEO Jensen Huang has said Huawei's latest processors are approaching parity with the $3.5 trillion company's cutting-edge H200 graphics processors. These are central to training advanced AI models. Chinese players like DeepSeek are also showing signs of catching up.
For the Trump administration, maintaining the U.S. lead starts with safeguarding demand for American products. That means ensuring key international customers in Europe and the Middle East don't drift toward Chinese suppliers. It's one reason Trump scrapped his predecessor Joe Biden's 'diffusion rule', which set country-specific quotas for advanced chips. The rule risked restricting previously friendly nations' access to semiconductors, pushing them into Huawei's arms.
On the supply side, Trump wants to bring manufacturing back onshore. As most advanced chips are still made in Taiwan, any diversification of supply chains makes sense. The $52.7 billion Biden-era CHIPS and Science Act -- which includes, opens new tab $39 billion in subsidies for domestic chip manufacturing -- is a start, but progress is slow. The bill only releases funds as projects meet staged milestones. Trump has criticised the act, while also using it to force private companies to crank up investment stateside. Taiwanese giant TSMC (2330.TW), opens new tab, for instance, committed to spending over $100 billion in the U.S. as it finalised state funding of $6.6 billion. GlobalFoundries (GFS.O), opens new tab this month pledged, opens new tab $16 billion alongside a $1.5 billion subsidy.
Tariffs are another of Trump's favoured tools. He has asked the Commerce Department to investigate chip supply chains under Section 232, citing national security. But applying levies to semiconductors is fraught. For a start, the U.S. imports relatively few chips, but lots of products which contain them. Semiconductors worth less than $40 billion arrived in the country in 2024, while the U.S. imported electronic goods worth $486 billion, according to the International Trade Centre. Trying to impose tariffs on components inside devices like laptops and iPhones would be tricky. There's no easy way to tell where the chip was made once it's been packaged.
Even if the Trump administration can successfully tilt the playing field towards domestic manufacturing, however, resilience still comes at a price. Proposed subsidies would make the cost of building semiconductor fabrication plants in the United States as competitive as in Asia, according to an industry analyst. But running those plants in a high-wage economy is another challenge: McKinsey & Company estimates operating costs are 35% higher in the U.S. than in Taiwan. Buyers of U.S.-made chips for cars or medical machines would have to absorb that premium or pass it on to customers. It also implies that semiconductor firms will need ongoing support in the form of tax breaks or operational subsidies as they shift supply chains.
However, Trump has made hostile noises about the costs of the CHIPS Act. One key incentive, a 25% investment tax credit for every dollar chipmakers spend on capital expenditures, is set to expire unless renewed. Commerce Secretary Howard Lutnick has hinted at possibly withholding further subsidies unless paired with broader tax legislation. The administration's stance on immigration, especially from China, is another impediment. Nvidia's Huang reckons around half of global AI researchers are Chinese. Meanwhile, nearly a third of chip companies' design engineers are in mainland China – the same proportion as in the United States, according to BCG data.
The administration's policy on export controls also remains in flux. Though it has rolled back the 'diffusion rule', nothing has replaced it. Crafting bespoke export agreements with every partner like the United Arab Emirates will be time-consuming. Other potential measures, such as banning shipments of chip-making equipment made by the likes of ASML (ASML.AS), opens new tab to China, would require cooperation from key allies in Japan and the Netherlands. It would also require U.S. equipment makers like $114 billion Lam Research (LRCX.O), opens new tab to sacrifice revenue which could be as much as 30% of the total top line. Trump's chaotic and go-it-alone instincts on tariffs risk undermining the partnerships he will need to isolate China.
China's chip campaign still falls short in several areas, including scale and efficiency. But Beijing's strategic clarity, persistence, and willingness to absorb long-term costs signal its serious intent. By contrast, Trump's U.S. chip revival is at best half-assembled.
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