Trump's return looms over global chip industry amid AI boom

In a recent opinion piece by The Financial Times, the return of Donald Trump to the political stage raises important questions about the future of the global chip industry, particularly amidst growing demands for artificial intelligence (AI) and computing power.

Although Trump didn’t initiate the global subsidy race, which can be credited to Chinese President Xi Jinping, his first administration played a crucial role in shifting US focus toward technological competition with China. President Biden extended many of Trump’s policies, including tariffs, export controls, and subsidies. Now, as Trump re-enters the scene, the tech rivalry with China is intensifying, especially with AI’s escalating need for computing capacity.

The key issue for the chip industry is tariffs. Trump's first term pushed the sector to restructure supply chains, with electronics assembly moving from China to places like Mexico and Southeast Asia. More tariffs on China are expected, but some Southeast Asian countries, which have seen rising trade surpluses with the US due to electronics exports, could also face new tariffs. Interestingly, not all US chip companies oppose all forms of tariffs. Washington is considering “component tariffs,” which would tax chips based on their components rather than where the device is assembled. This would target Chinese-made chips, regardless of their final assembly location, offering a more focused approach compared to broad tariffs.

Export controls are another area where Trump’s policies have continued under Biden. Trump's administration initially targeted Huawei, and Biden expanded these controls, limiting exports of AI chips and chipmaking tools to China. US lawmakers are now looking to address loopholes in these export restrictions, and despite some potential complaints from allies, the coalition restricting tech transfers to China is expected to stay intact.

Domestic manufacturing remains a challenge for the US, with Intel’s struggles highlighting the difficulty in ramping up chip production. While Trump has suggested tariffs might better incentivize domestic production than subsidies, imposing tariffs on key partners like Taiwan, which has seen a surge in exports thanks to companies like Nvidia, could hurt Silicon Valley. The bipartisan support for the Chips Act, which funds domestic chip manufacturing, remains strong, although Trump’s advisors are advocating for streamlined permitting and increased electricity production to speed up AI data centre construction.

Overall, as AI demand continues to grow, the future of the chip industry depends on swift action from the US, especially if a new Trump administration seeks to reset policies with visible outcomes before the next election cycle.