Why Donald Trump wants to kill the US CHIPS Act

The development came just days after Trump announced that chip giant, the Taiwan Semiconductor Manufacturing Co (TSMC), will increase its US investment by $100 billion, building five new “cutting edge” fabrication plants on American soil.

Here is a look at the CHIPS and Science Act, and why Trump wants to kill it.

First, what are semiconductors?

Also known as microchips or integrated circuits, semiconductors are made from silicon, and consist of millions or billions of transistors that act like miniature electrical switches that flip on and off to process data such as images, radio waves, and sounds. They are practically inside every essential product of the modern world — from household appliances to sophisticated defence systems, mobile phones to cars, toys to high-end luxury products.

In his book Chip Wars, economic historian Chris Miller describes the importance of these microchips as follows: “We rarely think about chips, yet they’ve created the modern world. The fate of nations has turned on their ability to harness computing power. Globalisation as we know it wouldn’t exist without the trade in semiconductors and the electronic products they make possible.”

What is the CHIPS Act?

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, which was signed into law in August 2022, aimed to bring microchip manufacturing back to the US after several decades of individual companies offshoring the technology.

According to a report by Council on Foreign Relations, a US-based think tank, “Although the country [the US] produced close to 40 percent of the world’s semiconductor supply in 1990, that statistic has slipped to just 12 percent.” Currently, Taiwan manufactures more than 60% of the world’s supply of semiconductors and more than 90% of the most advanced chips, the report said. No high-end chip manufacturing takes place in the US as of now.

The Act set aside $53 billion in federal incentives for domestic semiconductor manufacturing and research and development. Out of this, $39 billion was allocated for companies building new semiconductor manufacturing sites in the US. Under the law, companies are also eligible for a 25 percent tax credit.

In the final weeks of the President Joe Biden administration, the US Commerce Department finalised more than $33 billion in awards including $4.745 billion to South Korea’s Samsung Electronics, up to $7.86 billion for Intel (INTC.O), $6.6 billion for TSMC, and $6.1 billion for Micron.

Why is Trump against the CHIPS Act?

This is not the first time that Trump has derided the CHIPS Act. According to a report by Bloomberg, the President has gone after the law as he regards it as a waste of government funds, arguing tariffs would achieve the same outcome while filling coffers.

Republican leaders have also criticised the Act, arguing that they want to repeal its “social” provisions. “That could involve eliminating labor-friendly regulations or environmental requirements,” the report said.

Some officials, however, have expressed concern over Trump’s comments. They fear that the President would invalidate the aforementioned binding grant agreements struck in the Biden administration.

New York Governor Kathy Hochul said on Tuesday the law “is the reason Micron is bringing $100 billion and 50,000 jobs to Central New York. Trump just said he wants to get rid of it,” according to a report by Reuters.