December 06, 2024

How the Chip War Could Turn Under Trump

By: Chris Miller

What does the return of Donald Trump imply for the global chip war? Trump didn’t start the subsidy race — credit here goes to Chinese leader Xi Jinping — but his first administration focused the US on tech competition with China. Biden then extended Trump-era policies regarding tariffs, subsidies, and export controls. Now Trump is returning just as artificial intelligence intensifies demand for computing power.

For the chip industry, the immediate focus is tariffs. Trump’s first term drove the sector towards a costly supply chain restructuring, with electronics assembly shifting from China to Mexico and south-east Asia. More tariffs on China are certainly coming. But some south-east Asian countries whose electronics exports have driven higher trade surpluses with the US are also in the crosshairs.

If the new Trump administration wants to reset chip policy — and if it wants visible results within four years — it had better start soon.

Yet not every US chip company opposes every type of tariff. To protect industry segments impacted by heavily subsidised Chinese competitors, Washington is exploring “component tariffs” — that is, taxing imports based not on the location of final assembly but on the components inside. Today, a device assembled in Vietnam containing Chinese chips pays the tariff rate for Vietnam, not China. A component-based tariff regime would target Chinese chips, regardless of where final assembly occurs. Such a policy would fit Trump’s desire to tackle Chinese subsidies with more limited cost to companies and consumers than broad-based tariffs.

Export controls on US companies shipping AI chips and chipmaking tools to China were another Biden expansion of a Trump-initiated policy. It was Trump who first targeted Huawei. The Biden administration has since cut exports to over a hundred companies it says are Huawei-affiliated. It was Trump who worked with the Dutch government to ban sales of cutting-edge lithography machines to China; Biden expanded those restrictions.

Read the full article on Financial Times.

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