President Donald Trump challenged the CHIPS Act, favoring tariffs to attract semiconductors, despite experts arguing that subsidies have successfully drawn investment to the U.S.
President Donald Trump's appetite for tariffs over subsidy programs like the CHIPS and Science Act puzzles experts who are unaware of any proof that the threat of levies would lure semiconductor manufacturers to the U.S.
Trump made his distaste for the CHIPS Act clear during his prime-time address to a joint session of Congress on Tuesday. He also asked House Speaker Mike Johnson (R-La.) to find a way to dump the act and claimed that tariffs would motivate companies to build manufacturing plants in the U.S.
Trump's argument baffled academics, who considered the CHIPS Act successful in drawing investment in the U.S. semiconductor industry. They were also unaware of any credible research showing that tariffs are an effective tool for enticing manufacturers to invest in a country.
"I don't see how tariffs can help here," said Ram Bala, an associate professor at the Leavey School of Business at Santa Clara University. "I don't see how there is any net benefit here, to be honest."
The CHIPS and Science Act, signed into law by then-President Joe Biden in 2022, is bipartisan legislation that allocates $52 billion for semiconductor manufacturing. Since its signing, the act has spurred $400 billion in investments from the 20 companies that have reached binding agreements under the act. Companies, including Intel, Micron Technology, Samsung Electronics and Taiwan Semiconductor Manufacturing Co. (TSMC), will receive portions of the grant as they reach contracted milestones.
"In a democracy, you want subsidies because you want to see what taxpayers are paying to achieve various goals," said Susan Ariel Aaronson, a research professor of international affairs at George Washington University. "You can write in the legislation forms of accountability."
Tariffs imposed under Trump have been ambiguous, Aaronson said. "They're opaque because he threatens them, and then he goes back a little bit, and then he threatens again."
I would argue that all this uncertainty makes businesses not want to invest. America is no longer a stable place to invest.
Susan Ariel AaronsonResearch professor of international affairs, George Washington University
Indeed, on Tuesday, Trump imposed 25% tariffs on goods from Canada and Mexico, claiming that the countries weren't doing enough to stop immigrants from entering the U.S. illegally and drug smugglers from bringing fentanyl into the U.S. The next day, Trump granted a one-month delay on auto-related goods from the two countries, and on Thursday, he expanded the exemptions further.
Trump has also threatened tariffs against Europe and raised them to 20% on Chinese goods, fueling Wall Street investor fears of a possible trade war. Those fears, stubborn inflation and the Trump administration's mass firings of government workers sent the stock market into a tailspin Thursday.
"I would argue that all this uncertainty makes businesses not want to invest," Aaronson said. "America is no longer a stable place to invest."
The Science Coalition, a group of more than 50 research universities, is concerned over media reports that the Trump administration has reduced the size of the workforce in the CHIPS Program Office by 40%. The office is in charge of administering the $11 billion earmarked for chip research.
University researchers test theories in labs nationwide to find ways to make faster, smaller and more cost-effective semiconductors. Companies typically commercialize university breakthroughs while avoiding the risks.
"A lot of that research has to be funded at the basic level because a lot of these scientists are testing things that are just unproven, and they could fail," said Daniel Jacobs, spokesman for the coalition. "They could lead to nothing, or they could lead to the next trillion-dollar technology."
On Monday, TSMC unveiled an ambitious plan to spend an additional $100 billion to expand its manufacturing operations in the U.S. in the coming years. The Taiwanese company had already committed to spending $65 billion in the country.
During his speech before Congress, Trump claimed that his tariff threat spurred TSMC into committing to the larger investment. Steve Hall, chief AI officer and president of Europe, Middle East and Africa at Information Services Group, said he has his doubts. ISG is an AI-centered technology research and advisory firm operating in more than 20 countries.
Hall credited lessons learned during the COVID-19 pandemic. Companies learned the importance of having manufacturing facilities closer to customers to bypass events that could cause major disruptions in moving goods from other countries. Some of TSMC's largest customers are U.S. companies, including Nvidia, the world's dominant AI chipmaker, as well as Amazon, Google and Microsoft, which design chips for use in their respective public clouds.
"The global investment in chips, fabs [fabrication plants] and designs was happening as a response to the pandemic because the supply chain was so impacted," Hall said.
The goal of diversifying supply chains was already set when Biden signed the CHIPS Act and will continue, irrespective of tariffs, he said.
"The tariffs, from my perspective, are going to have a negative impact in the short term and a minimum impact on tech in the long term," Hall said.
Antone Gonsalves is an editor at large for Informa TechTarget, reporting on industry trends critical to enterprise tech buyers. He has worked in tech journalism for 25 years and is based in San Francisco. Have a news tip? Please drop him an email.
