The U.S. has fallen behind in semiconductor manufacturing, allowing China and other Asian countries to take the lead, as noted by Gina Raimondo, the U.S. Commerce Secretary, in a 2021 interview.
Four years later, semiconductors remain a crucial point in the U.S.-China competition for technological dominance. President Donald Trump has now set his sights on reviving the U.S. chip industry, attempting to accelerate a complex and highly technical manufacturing process that has taken decades for other regions, particularly Asia, to master.
Trump argues that his tariff policies will strengthen the U.S. economy and bring jobs back to the country, but major companies in the semiconductor sector have long faced challenges, such as a shortage of skilled workers and low-quality output in domestic factories.
The question now is what Trump’s approach will bring, and whether the U.S. can realistically compete with Taiwan and other parts of Asia, which currently lead the world in producing high-precision chips at scale.
The Complexity of Chip Production
Semiconductors are essential for a wide range of products, from household appliances to smartphones, military aircraft, and electric vehicles. Though the U.S. originally invented chips, it is now in Asia that the most advanced semiconductors are produced at large volumes.
Chip production is both expensive and technologically complex. For example, while the design of an iPhone’s chips may be American, the chips themselves are often manufactured in Taiwan, Japan, or South Korea, using raw materials like rare earth metals, which are mostly mined in China. These chips are then sent to countries like Vietnam for packaging, China for assembly and testing, and finally to the U.S. for sale.
This global supply chain is highly integrated and has developed over decades.
Trump has praised the semiconductor industry, yet he has also threatened it with tariffs. He has specifically warned Taiwan Semiconductor Manufacturing Company (TSMC) that it would face a 100% tax if it did not establish factories in the U.S.
Given the complexity of the semiconductor ecosystem and fierce competition, companies must plan for long-term investments and higher costs, well beyond Trump’s presidency. The fluctuating nature of U.S. trade policies adds to the uncertainty, though some companies have shown interest in investing in the U.S.
Global Subsidies and the U.S. Chips Act
Countries like China, Taiwan, Japan, and South Korea have provided significant subsidies to private companies to support semiconductor production. This has been a key factor in their success.
The U.S. has also attempted to address this issue through the Chips and Science Act, signed into law by President Joe Biden in 2022. This law aims to bring semiconductor manufacturing back to the U.S. by offering grants, tax credits, and other incentives to encourage domestic production.
Major companies like TSMC and Samsung have benefitted from this legislation. TSMC has received $6.6 billion in grants for building plants in Arizona, while Samsung has received around $6 billion for a plant in Texas. TSMC also announced plans to invest an additional $100 billion in the U.S. over the next few years.
However, despite the investments, these companies have faced challenges such as rising costs, difficulties in recruiting skilled labor, construction delays, and opposition from local unions.
Manufacturing Capacity and Expertise
While TSMC’s plants in Arizona produce high-quality chips, experts point out that they are not yet on par with the most advanced chips produced in Taiwan. Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, explains that Taiwan currently has far more manufacturing capacity, built up over decades.
TSMC pioneered the “foundry model,” in which it manufactures chips for other companies using U.S. designs. This model allowed TSMC to compete with U.S. and Japanese giants by attracting top engineers, skilled labor, and fostering knowledge-sharing.
While the U.S. could produce semiconductors and create jobs, experts believe it may struggle to match the precision and scale of chip production in Asia, especially in cutting-edge technologies. One challenge is the U.S. immigration policy, which limits the flow of skilled workers from countries like China and India, potentially hindering the ability to hire the talent necessary for high-tech manufacturing.
The Global Impact and New Manufacturing Hubs
Trump has doubled down on tariffs, ordering a national security investigation into the semiconductor sector. This has caused disruptions in the global supply chain. For example, Japan had based much of its economic recovery on semiconductor production, but tariffs have complicated that strategy.
The long-term effect could be a renewed focus on domestic manufacturing in several key global markets, including China, Europe, and the U.S. Some companies, like Huawei, have already begun to diversify their markets, expanding into Europe and emerging markets such as Thailand and the UAE in response to tariffs and export controls.
China is actively investing in research and development to compete in the semiconductor space. If successful, it could become a leader in cost-effective and ultra-high-tech semiconductor production in the future.
India, with its relatively low labor costs and skilled workforce, is seen as a potential competitor to the U.S. in the semiconductor market. However, India faces its own challenges, including securing land for factories and ensuring access to clean water for production.
The Role of U.S. Companies and Lobbying
While the chip sector faces pressures from tariffs, major U.S. companies like Microsoft, Apple, and Cisco depend heavily on semiconductors. This could give them leverage to influence policy decisions. For instance, Apple CEO Tim Cook reportedly played a role in securing exemptions from tariffs on smartphones and laptops, while Trump lifted a ban on chip sales to China by Nvidia following lobbying efforts.
In the end, some experts believe that Trump’s approach to chip manufacturing may be more about striking deals rather than building a competitive industry from scratch. There may be an effort to force companies like TSMC to partner with U.S. firms like Intel to share the benefits of the semiconductor supply chain.
The semiconductor industry’s evolution in Asia provides a valuable lesson: no single country can dominate chip production alone. To achieve advanced semiconductor manufacturing efficiently and at scale, collaboration in a globalized economy has been essential.
Get the latest supply chain report news at The Supply Chain Report. Learn more about international trade with tools from ADAMftd.com.
#USSemiconductor #SemiconductorProduction #AsiaTechCompetition #TechIndustryChallenges #USInnovation #GlobalManufacturing #SemiconductorSupply
