Semiconductors, Tariffs, & Chip Restrictions Under Trump

Author Chris Miller analyzes how Trump's 2024 election victory will impact US-China semiconductor competition, export controls, and the domestic chip manufacturing strategy under the CHIPS Act.

Key Takeaways

• Remarkable policy continuity exists across Obama, Trump, and Biden administrations on semiconductor restrictions and domestic subsidies
• China's massive investment focuses on legacy chips rather than cutting-edge processors, threatening Western dominance in commoditized segments
• Export controls effectively limit China's access to advanced AI chips but face enforcement challenges through smuggling and shell companies
• US tech firms dramatically increased capital expenditure for AI infrastructure while Chinese firms show minimal investment growth
• Three key bottlenecks determine AI leadership: data quality, computing power, and energy access for massive data centers
• Trump's return likely means continued restrictions on China plus aggressive tariff expansion under Robert Lighthizer's influence
• Component-level tariffs targeting Chinese chips embedded in foreign products represent next escalation phase
• China's reluctance to build large AI clusters stems from political concerns rather than technical limitations
• Western semiconductor equipment companies resist tighter controls due to significant Chinese revenue dependence

Timeline Overview

• 00:00–12:30 — Trump Election Impact and Policy Continuity: Surprising continuity across three administrations on semiconductor policy, CHIPS Act origins under Trump and Biden implementation, tariff and restriction escalation patterns, Robert Lighthizer's expected influence on industrial policy, waiting for key appointments in Treasury and Commerce departments
• 12:30–18:45 — China's Legacy Chip Investment Strategy: Massive Chinese capacity buildout in lower-end semiconductors for appliances and automotive applications, government subsidies driving non-economic expansion, Western firms facing chilling effects from Chinese competition, distinction between leading-edge and legacy chip market dynamics
• 18:45–25:20 — Western Response to Chinese Chip Flooding: Biden administration doubling tariffs from 25% to 50% on direct Chinese chip imports, component-level tariff discussions for Chinese chips embedded in foreign products, security-based bans on Chinese chips in critical systems, blanket restriction movement from targeted controls
• 25:20–32:15 — Export Control Effectiveness and Enforcement Challenges: China's deficit in AI compute evidenced by smuggling and downgraded chip purchases, enforcement difficulties with dual-use technology versus military-specific controls, wafer bridge circumvention between restricted and unrestricted facilities, shell company usage for accessing TSMC production
• 32:15–38:40 — AI Competition Bottlenecks: Data, Computing, and Energy: Three key vectors for AI development with varying advantages, synthetic data generation becoming more important than raw internet text, China's regulatory advantages in facial recognition versus US strengths in synthetic data innovation, autonomous driving data collection implications
• 38:40–45:25 — US-China AI Infrastructure Investment Disparity: Dramatic capex increases by US tech firms versus flat Chinese investment levels, political economy reasons for Chinese private sector restraint, government skepticism about consumer AI applications, lack of state intervention to fill private sector gap
• 45:25–52:10 — Energy and Nuclear Power Challenges: Amazon nuclear facility deal suspension and regulatory hurdles, endangered species protection slowing Facebook's nuclear plans, China's nuclear buildout announcements versus actual implementation, coal versus nuclear power trade-offs for data centers
• 52:10–58:35 — Export Control Loopholes and Circumvention Methods: EUV lithography tools effectively banned due to size and visibility, chip manufacturing tool restrictions harder to enforce, wafer bridge evidence of illegal tool usage, TSMC shell company production revealing Chinese technological weakness
• 58:35–65:20 — Industry Resistance and Political Constraints: Equipment companies' revenue dependence on Chinese market creating lobbying pressure, administrative capacity limitations on closing loopholes, annual export control update cycles leaving known vulnerabilities open, fear of Chinese retaliation on critical materials

Policy Continuity Across Administrations

• Semiconductor policy demonstrates remarkable bipartisan continuity from late Obama through Trump's first term and Biden's presidency, with each administration building upon rather than reversing predecessor initiatives. The CHIPS Act originated under Trump's industrial policy framework before Biden's implementation and expansion.
• China restrictions began escalating under Trump's trade war and continued with more sophisticated structure under Biden, suggesting institutional momentum beyond individual political preferences. Export controls, tariffs, and domestic subsidies represent consensus policies transcending party lines.
• Trump's 2024 victory positions Robert Lighthizer as the key figure shaping industrial policy, likely through Treasury or Commerce Department roles. Lighthizer's influence during the first Trump term established the foundation for current semiconductor restriction architecture.
• Tariffs received Trump campaign emphasis while semiconductor-specific policies remained less prominent, suggesting continuity with potential intensity increases rather than fundamental direction changes. The infrastructure for restriction and subsidy policies already exists.
• Administrative appointments at under-secretary levels will determine implementation effectiveness more than cabinet-level positions, requiring close monitoring of bureaucratic personnel selections. Policy execution depends heavily on technical expertise in export control enforcement.
• Three-administration policy trajectory suggests semiconductor competition with China has achieved institutional permanence regardless of electoral outcomes, creating predictable strategic framework for industry planning and international relationship management.

China's Legacy Chip Investment Strategy

• China's massive semiconductor investment focuses on legacy chips for appliances, automotive, and industrial applications rather than cutting-edge processors for AI and smartphones. This strategy reflects both technological limitations and strategic necessity for supply chain independence.
• Chinese capacity buildout in lower-end semiconductors approaches the scale of rest-of-world combined investment, representing dramatic shift from historically minor role in even commodity chip production. Government subsidies drive expansion beyond economic demand justification.
• Strategic rationale includes reducing dependence on Western suppliers for basic electronic components that proved vulnerable during 2021-2022 chip shortages. China imports enormous volumes of legacy chips that could be threatened in Taiwan conflict scenarios.
• Non-economic investment drivers include provincial and municipal government subsidies that incentivize capacity expansion regardless of market demand. Factory owners face minimal risk while receiving substantial government support for facility construction.
• Western firms experience chilling effects from Chinese competition, with investors publicly advocating reduced capital investment in Western legacy chip facilities. Market flooding concerns affect investment decisions across US, European, and Japanese companies.
• China's approach mirrors historical rare earth, gallium, and germanium market strategies where subsidized overproduction creates dominance in commoditized segments. Similar dynamics threaten Western industrial base in semiconductor components.

Export Control Architecture and Enforcement

• Export controls effectively limit China's access to advanced AI chips, evidenced by massive smuggling operations and purchases of specifically downgraded processors. China's H20 chip imports and H100 smuggling demonstrate compute deficit relative to desired capabilities.
• Enforcement challenges stem from dual-use technology complexity versus historically simpler military-specific controls. Dual-use export restrictions require more sophisticated enforcement mechanisms than traditional weapons technology limitations.
• EUV lithography tools represent most successful restriction category due to size, visibility, and specialized nature preventing smuggling or circumvention. Blanket bans on large, unique equipment prove most enforceable.
• Chip manufacturing tool restrictions face greater enforcement difficulties when applied to specific factories versus others, enabling obfuscation through wafer bridges and shell company arrangements. Chinese firms exploit rule complexities to access restricted capabilities.
• TSMC shell company production reveals both Chinese technological weakness and significant enforcement loopholes. Accessing Taiwan production capabilities demonstrates inability to achieve domestic advanced manufacturing while highlighting restriction gaps.
• Administrative capacity limitations prevent rapid loophole closure, with annual export control update cycles leaving known vulnerabilities open for months. Political considerations override technical enforcement needs in timing restriction updates.

AI Competition Dynamics and Infrastructure

• Three key bottlenecks determine AI leadership: data quality, computing power, and energy access for massive data centers. Each vector presents different competitive advantages and vulnerabilities for US versus Chinese development.
• Data advantages vary by application, with China leading in facial recognition due to privacy regulation differences while US maintains advantages in synthetic data generation and text-based training. Internet text training provides no inherent national advantage.
• Computing power competition reflects export control success, with US firms dramatically increasing capital expenditure for large AI clusters while Chinese firms show minimal investment growth. Private sector restraint in China stems from political rather than technical limitations.
• Energy access challenges affect both countries through different mechanisms, with US facing environmental regulation constraints while China confronts political priority questions. Nuclear power buildout announcements exceed actual implementation in both countries.
• Clustering advantages favor US development due to economies of scale in large data centers, while Chinese facilities remain smaller despite potential technical capability to build larger installations. Political economy factors constrain Chinese private sector investment.
• Infrastructure provision dominance creates lasting competitive advantages through cloud computing services, regulation influence, and privileged access control. US firms maintain comprehensive advantage in AI infrastructure ecosystem.

Industry Resistance and Commercial Pressures

• Semiconductor equipment companies resist tighter export controls due to significant Chinese revenue dependence, with firms like ASML and Applied Materials deriving approximately half their revenue from Chinese markets. Commercial interests create political pressure against restriction expansion.
• Equipment firms advocate for maintaining market access in spheres deemed non-security relevant, though definitional boundaries remain vague and debatable. Industry lobbying influences restriction scope and timing across US, Netherlands, and Japanese policies.
• Revenue loss from Chinese market restrictions threatens research and development capabilities at Western equipment companies, potentially undermining long-term technological leadership through reduced innovation investment. Commercial considerations complicate security objectives.
• Component-level tariffs represent next escalation phase targeting Chinese chips embedded in foreign products, addressing current loopholes where direct chip imports face tariffs but system-embedded chips avoid restrictions. Implementation complexity reflects supply chain integration depth.
• Fear of Chinese retaliation on critical materials including gallium, germanium, and rare earths influences restriction timing and scope. US seeks to minimize retaliation risk while preparing for potential Chinese response escalation.
• Political influence of affected companies creates institutional resistance to rapid restriction expansion, requiring careful balancing of commercial interests against security objectives. Industry stakeholder management becomes crucial policy consideration.

Trump Administration Implications

• Trump's decisive 2024 victory with Republican congressional control provides opportunity for comprehensive industrial policy implementation without Democratic opposition constraints. Unified government enables aggressive policy execution across multiple fronts.
• Tariff expansion likely accelerates under Trump leadership, with potential component-level restrictions on Chinese chips embedded in foreign products. Lighthizer's influence suggests sophisticated trade policy implementation beyond simple tariff increases.
• Semiconductor restrictions face continuation and potential intensification rather than reversal, building on established bipartisan policy framework. Trump's trade war origins provide foundation for expanded competition with China.
• China policy represents rare area of bipartisan consensus, suggesting Trump administration will maintain restriction architecture while potentially increasing enforcement intensity. Political incentives align with strategic security objectives.
• Administrative capacity improvements under second Trump term could enable more effective export control enforcement, addressing current loopholes through enhanced bureaucratic capability. Experience from first term provides implementation lessons.
• International coordination requirements for effective semiconductor restrictions may face challenges under Trump's multilateral relationship approach, though China competition provides strong alliance motivation. Technical cooperation needs transcend political preferences.

Long-term Strategic Implications

• US-China semiconductor competition represents fundamental shift from economic engagement to strategic competition, with implications extending beyond chip industry to broader technological leadership. Competition dynamics affect multiple industrial sectors.
• Legacy chip market dominance by China threatens Western industrial base independence, creating potential leverage opportunities similar to rare earth manipulation. Strategic vulnerability extends beyond advanced semiconductor dependence.
• AI infrastructure provision advantages create lasting competitive moats for US technology companies, enabling influence over global AI development and deployment. Cloud computing dominance provides strategic control mechanisms.
• Energy access challenges for data centers force trade-offs between climate goals and technological competition, with potential policy priority shifts toward strategic competition over environmental concerns. Political coalitions may realign around competitiveness imperatives.
• Export control effectiveness depends on maintaining technological leadership while preventing leakage through enforcement mechanisms. Balancing commercial interests with security objectives requires sophisticated policy management.
• International alliance coordination becomes essential for effective restriction implementation, requiring sustained diplomatic engagement despite potential political tensions. Technical cooperation transcends individual political relationships.

Conclusion

Chris Miller's analysis reveals how Trump's 2024 election victory will likely intensify rather than redirect the bipartisan semiconductor competition strategy established across three administrations. The remarkable policy continuity from Obama through Biden demonstrates institutional momentum that transcends political preferences, with Trump's return promising escalation through Robert Lighthizer's influence on tariff and industrial policy. China's massive legacy chip investment strategy threatens Western dominance in commoditized segments while export controls successfully limit access to advanced AI processors despite enforcement challenges.

The AI competition increasingly depends on infrastructure provision advantages that favor US companies, though energy access and regulatory constraints create implementation challenges. Trump's unified government control provides opportunity for comprehensive industrial policy execution, though international coordination requirements for effective semiconductor restrictions may face renewed challenges under his multilateral relationship approach.

Future Predictions

• Tariff escalation acceleration — Component-level tariffs targeting Chinese chips embedded in foreign products will expand significantly, closing current loopholes while creating new supply chain complexities
• Export control intensification — Annual restriction updates will become more frequent and comprehensive, potentially moving toward blanket bans on Chinese access to advanced semiconductor tools
• Legacy chip market bifurcation — Chinese subsidized overproduction will create separate market segments, with Western firms retreating from commoditized categories while focusing on high-value applications
• AI infrastructure consolidation — US cloud computing dominance will strengthen through continued private sector investment while Chinese firms face political constraints on large-scale data center construction
• Energy policy realignment — Strategic competition priorities will override environmental concerns, accelerating nuclear power deployment and natural gas usage for data center operations
• Alliance cooperation deepening — Technical semiconductor restrictions will require enhanced coordination between US, Netherlands, Japan, and South Korea despite potential political tensions
• Industry consolidation pressure — Equipment companies will face difficult choices between Chinese market access and Western security requirements, potentially leading to strategic partnerships or acquisitions
• Retaliation cycle intensification — Chinese responses through critical materials restrictions will escalate, forcing US strategic stockpiling and alternative supply chain development
• Investment pattern divergence — US venture capital and private equity will increasingly avoid Chinese semiconductor investments while government funding expands domestic capacity
• Technology decoupling acceleration — Separate technological ecosystems will emerge more rapidly, with Chinese and Western semiconductor industries developing incompatible standards and capabilities