The ‘Chip War' under Trump

Politico

a day ago

With help from Anthony Adragna
Semiconductors are quickly taking their place as perhaps the world's most coveted products. They might not be redrawing maps or starting wars, like the spice trade or petroleum, but in the past few years the $600 billion chip trade has risen to the top of global conversations around security and economic dominance.
It's also a very fragile ecosystem. The microchip supply chain is dizzyingly complex and full of chokepoints — not least the dominance of geopolitically vulnerable Taiwan. And it has been thrown into upheaval by the transition between Presidents Joe Biden and Donald Trump, whose trade policies take sharply different approaches to keeping China in check.
Tufts University historian Chris Miller is the foremost academic expert on the semiconductor trade; his influential book Chip War was required reading for the Biden administration during the implementation of the CHIPS Act.
Since Miller published it in 2022, microchips have become even more important — and more contested. What's changed lately, and what issues does it raise for policymakers?
DFD spoke with Miller about the rising tensions. 'U.S.-China tech competition has intensified, and semiconductors have really taken center stage, in part because of their role in AI,' said Miller.
He saw the CHIPS Act was a major step forward for insuring against a doomsday scenario in which the U.S. suddenly loses access to Taiwan's chip fabrication plants, but hasn't necessarily made up for China's recent strides in manufacturing. He also identified a couple of ways that Trump's renegotiation and tariff strategies could backfire, and highlighted a hidden risk of the president's recent chip deals in the Middle East.
Oh, and he said a Chinese invasion of Taiwan is still a bigger risk than people think.
Why the CHIPS Act was a good start (but not enough): As Chip War documents, China's rise as a chipmaker was very deliberate, launched by President Xi Jinping around 2014. Thwarting Xi's bid for semiconductor dominance has been a major focus of U.S. tech policy under both Biden and Trump, though with very different tools.
Biden supported export controls on powerful chips, and took an investment-driven approach to bring chip manufacturing back to the U.S. The CHIPS Act, with its industrial subsidies, has been 'a big deal,' said Miller, pointing to the Taiwan Semiconductor Manufacturing Company's (TSMC) $165 billion investment to build plants in Arizona. 'It gives a meaningful amount of room to maneuver in a worst-case scenario.'
But there are limits to how much it has accomplished. China isn't the world's leading microchip power, but Miller thinks it has made significant progress even since his book came out, thanks to its frenzy of domestic manufacturing investment beginning in 2023. 'It's closed the gap between its aspirations and reality,' he said.
TSMC still fabricates about 90 percent of the world's most advanced semiconductors, around the same level as in 2022. A Chinese invasion or blockade of Taiwan would thus knock out a linchpin of the U.S.'s chip supply chain — a threat Miller believes has only intensified since 2022.
Not only have China's military powers grown, but its recent investments in domestic manufacturing have lessened its dependence on Taiwan's fabricators. 'China's actually beginning to kind of develop some insurance against the economic cost of knocking off Taiwan,' Miller said. 'I don't think that, either at the U.S. government or corporate level, people are really pricing in the risk.'
An 'America first' chip strategy could backfire: Biden's chip strategy was built on the carrot of investment subsidies. Trump's is built on the stick of tariffs. The president claims that he used the threat of 100% tariffs to convince TSMC to pitch in an additional $100 billion for its U.S. expansion, up from the $65 billion it pledged right before he took office. (TSMC declined to comment to DFD on whether the prospect of tariffs was the motivation.)
Miller said that tariffs are a reasonable chip policy to a certain extent, but could end up dashing the U.S.'s chances of leading the AI boom by making high-end chips too expensive. 'It's those chips scal[ing] at as low cost as possible that enable AI, enable our tech firms,' he said.
Trump is a fierce critic of the CHIPS Act, wary of using public money to promote domestic manufacturing. Commerce Secretary Howard Lutnick told senators at a budget hearing last week that the administration is actively renegotiating CHIPS grants, pushing manufacturers to put more skin in the game.
This, too, could ultimately backfire, said Miller. 'Companies are not going to do more than is economically rational,' he said. 'That will be a limiting factor in terms of what kinds of renegotiations we end up seeing.'
An overlooked risk of the Middle East chip deals: Trump has also been promoting the use of U.S. semiconductors abroad. Deals between American AI companies and Gulf states were a centerpiece of Trump's Middle East tour in May.
Some in Congress saw this as a security threat. Rep. John Moolenaar (R-Mich.) worries that it would give Beijing yet another way to steal U.S.-made chips that America legally bars from selling to China. (China's recent manufacturing strides have mainly been with mid-to-lower tier chips, so it still needs to smuggle in the higher-end units needed for AI.) This tension between national security and business development has long plagued the chip industry – Chip War recounts similar congressional handwringing over American companies sharing advanced research with the Dutch firm ASML to improve chip printing in the 2000s.
Miller said the national security objections could have some merit, but also added that smuggling computing power is no longer a matter of just getting your hands on physical chips. 'Most data centers like those from cloud computing are accessed remotely,' said Miller. 'So one of the key questions for the Middle East deals is not just whether the chips will stay where they are, but will the computing be accessed remotely by entities that shouldn't be accessing it?'
Miller still believes that U.S. export controls should focus on the most advanced semiconductors. Those are the chips China wants, and Miller isn't sold that the country will be able to up their production anytime soon. He said, 'The evidence we have right now is that because China's own production capacity is so constrained, that's not realistic over the next couple of years.'
The Senate takes on a new (and very old) AI problem
Congress is worried that AI therapists might be a bunch of quacks, threatening users' mental health and data privacy.
On Monday, Sens. Cory Booker (D-N.J.), Alex Padilla (D-Calif.), Peter Welch (D-Conn.), and Adam Schiff (D-Calif.) announced they'd sent a letter to Meta in which they 'express concern over reports that Meta is deceiving users who seek mental health support from its AI-generated chatbots, creating the false impression that AI chatbots are licensed clinical therapists.'
Their questions were based partly on 404 Media's coverage of therapy chatbots on Instagram, which reporters found had been claiming to hold psychology doctorates and certifications from medical licensing boards, even producing fake licensing numbers. The senators asked Meta what it was doing to prevent chatbots from making such misrepresentations and protect the data of users seeking AI therapy.
(Meta did not respond to DFD's inquiry by deadline, nor has it responded to the senators' letter. In the initial 404 article, it said: 'AIs are clearly labeled and there is a disclaimer that indicates the responses are generated by AI to help people understand their limitations.')
Therapy chatbots are both very new and very old. One of the first famous experiments in human-computer conversation was in the 1960s, when Massachusetts Institute of Technology professor Joseph Weizenbaum programmed a therapist-style bot named Eliza. It would console troubled users by spitting out responses based closely on their input, like, 'I am sorry to hear that you are depressed.' Even in that simple form, people connected to it deeply. Weizenbaum later said his secretary had asked for some time alone with Eliza, which he took as a sign of its effectiveness.
Now, with the recent rise of generative AI, companion chatbots, whether as friends or therapists or some combination of the two, have grown far more sophisticated and incredibly popular – the Google-backed company Character.ai reported last year that its entire fleet of bots were fielding about 20,000 queries per second.
Therapy chatbots in particular have been a major sticking point for youth advocates. Aviva Smith, advocacy director of the Youth Power Fund, contended that such chatbots should have to undergo the Food and Drug Administration's premarket testing for medical devices. She also suggested that they be subject to HIPAA privacy regulations. 'The Senators are asking all the right questions, but we already know the answers,' she says.
META'S MASSIVE NEW AI BET
Mark Zuckerberg and Meta are finalizing plans for a powerful artificial intelligence lab dedicated to investigating 'superintelligence,' according to multiple news reports.
Meta's been offering seven- to nine-figure compensation packages to poach dozens of researchers from leading AI companies such as OpenAI and Google to build a model more capable than the human brain. One of the most notable hires was Alexandr Wang, the founder and chief executive of the start-up Scale AI.
In February remarks, Zuckerberg called AI 'potentially one of the most important innovations in history' and that 'this year is going to set the course for the future.'
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Stay in touch with the whole team: Aaron Mak ([e-mail]); Mohar Chatterjee ([e-mail]); Steve Heuser ([e-mail]); Nate Robson ([e-mail]); and Daniella Cheslow ([e-mail]).