Written by James Kluge
President Trump has never been one to mince words, and his 2025 Joint Address to Congress was no exception. However, amidst allegations of government fraud, an ongoing migrant crisis, and tariff posturing, he snuck in a demand to Speaker Mike Johnson (R—Louisiana): Dismantle the 2022 Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act.
The request was met with some confusion, even from Republican lawmakers. Sen. John Cornyn (R–Texas) supported passing the act in 2022 and believes a repeal is unlikely to happen (Smith et al.). Senator Schumer was blunt: “I do not think the president will find much support in Congress for undermining these CHIPS investments and the massive amount of jobs they are creating.” Then-president Biden signed the $52 Billion CHIPS Act into law on August 9th, 2022 with two central goals. The first objective is incentivizing already established semiconductor manufacturers – notably the Taiwanese Semiconductor Manufacturing Company (TSMC) and Samsung – to invest in the US market. This goal has a slated budget of $39 Billion. The other, more subtle goal is funding the continued research and development of semiconductor technology and workforce training, for which the other $13 Billion was appropriated (Blevins et al. 2023.
Early returns of the Act are promising, to say the least. Since implementation, over 80 semiconductor projects have been announced across 25 states, amounting to an estimated $450 billion of private sector investment (Brown). Most recently, TSMC announced an additional $100 billion investment spread over three new US-based plants. Considering the initial $52 billion investment, the Act has been incredibly successful at reeling in foreign investment into the US semiconductor industry.
This all begs the question: Why would President Trump want to disrupt a largely successful Act? Although Trump may have underlying political motives to dismantle the Act, his main economic argument is that the $39 billion in subsidies is wasteful. In a very carrot-or-stick dilemma, President Trump has concluded that the same investment incentivized by subsidization can be maintained through his signature tariff policy, an approach economists question (Stackpole 2024). In his address to Congress, he maintained that “We just wanna protect our businesses and our people and they [foreign investors] will come because they won’t have to pay tariffs if they build in America” (TIME 2025).
Is this the most likely outcome of a tariff-based strategy? Initial research is doubtful. Trump has threatened to target semiconductor manufacturing hotspots, most notably Taiwan, with 100% tariffs in hopes that the difference in production costs are large enough for US chip producers (Apple, Qualcomm, NVIDIA, among others) to bring jobs/investment back home. This logic fails for two reasons: On the one hand, a targeted tariff may incentivize Taiwan-based companies to move to other foreign countries to produce semiconductors. Not only does this move hurt a key ally in Taiwan, there is also no guaranteed investment into the US semiconductor industry. On the contrary, companies may even move to emerging US production rivals in South Korea and, most notably, China. China has been keen on attracting foreign semiconductor investment with a $47 billion subsidization policy, and US tariffs will only expedite the process (He 2024).
On the other hand, a widespread tariff on semiconductors will more likely isolate US markets than bring investment home. The global chip market has been clear: if US consumers do not buy foreign chips, somebody else will. According to McKinsey Research, the global chip market will grow 6-8% every year for the next five years, largely driven by the automotive, computation, data storage, and wireless industries (Burkacky et al.). At the same time, Trump’s proposed tariffs will hike US prices for semiconductor products and, therefore, reduce consumption. These two market forces prime the semiconductor industry to simply not sell to the US – American demand will drop while foreign demand keeps rising, effectively isolating the US market.
More concerning is the threat of retaliatory tariffs. Beijing has not taken kindly to US tariffs and is primed to announce more counter-tariffs on key industries. As Chinese Foreign Ministry Secretary Lin Jian put it, “The Chinese people have never been afraid of evil, do not believe in ghosts, and have never been bullied.” (AP News). According to the St. Louis FED, China is the second-largest destination for US-made chips, comprising 18% of US exports. For some US companies, this number is much higher: Lam Research, ASML, KLC, and Applied Materials all export over 40% of their products to China (Kindig). Their combined 19 factories are all vulnerable to Chinese counter-tariffs. If Trump’s tariffs continue blacklisting US semiconductors from China’s markets, these factories will be the first to feel pain.
Even if Trump plans to pause subsidization, a rare instance of bipartisan support stands in his way. Ohio Senator John Husted pushed back on Trump’s remarks to Congress: “For the economic and national security of America, we need to make chips in the USA — I believe this is part of an America First agenda. Making chips in places like Ohio will make sure that China doesn’t win” (Filby). The CHIPS Act has benefitted Ohio in particular: Intel has been constructing a new $20 billion factory in New Albany – the largest on the planet, according to the company. TSMC also broke ground on its third Arizona factory under CHIPS subsidization (Wiles & Vanek). If red states continue to be the primary recipients of the CHIPS Act’s investment surge, there should continue to be unwavering support from both sides.
Furthermore, the CHIPS Act’s $39 billion subsidization fund hasn’t run out. Out of the principle, the US has only doled out $23.3 billion. The lion’s share went to Intel, TSMC, Samsung, and Micron for factory projects planned to add over 30,000 high-paying chip manufacturing jobs to the US economy and an estimated 100,000 construction and supplier jobs from downstream supply effects. Again, it is politically noteworthy that the majority of these jobs are created in red areas; GOP congressmen are unlikely to cosign dismantling the CHIPS act if their constituents benefit the most.
It’s highly unlikely that conservative senators will cut the CHIPS Act—their proverbial nose—to spite their face. President Trump may harbor political motivations for cutting his predecessor’s legislation, but that does not mean Congress will be on board. There has simply been too much investment in the US semiconductor industry to justify killing the CHIPS Act, even in our highly partisan political climate. Despite what Trump may say, the CHIPS Act is going nowhere.
References
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