For a brief period in 2022 and 2023, the CHIPS Act appeared to be the most unusual development in contemporary American economic policy: a bipartisan industrial program that was actually implemented. semiconductor incentives totaling $52 billion. groundbreaking in upstate New York, Ohio, Arizona, and Texas. From interstates, cranes are visible. Hard hat press conferences. It was the kind of manufacturing-related imagery the nation had not produced in decades. It felt like a turning point for anyone who had spent years arguing that the United States ought to resume producing cutting-edge chips domestically. However, the announcement was never fully matched by the execution.
During the Biden administration, the vetting and disbursement procedure was notoriously delayed. Intel, TSMC, Samsung, Micron, GlobalFoundries, and other companies that had pre-positioned themselves as perfect prospects endured months of paperwork, environmental studies, and conditional milestones linked to union neutrality terms, employment pledges, and childcare measures. Executives in the industry, some of whom supported the bill’s objectives, started openly lamenting that the funding wasn’t flowing quickly enough to meet the building schedules they were attempting to adhere to. The pace was justified by the Commerce Department as being suitable for the program’s size. However, the calendar did not stop for the discussion.
The administration thereafter underwent a shift. Even close watchers have been taken aback by how the Trump team has progressed through various levels of the program. Funds intended for the national Natcast technological hub, which was intended to serve as a public-private research bridge for improved packaging and next-generation semiconductor development, have been reclaimed. The federal government is now negotiating ownership holdings in exchange for Intel’s funding, which has been reorganized. Speaking with those who follow this carefully gives the impression that the program has been subtly altered rather than eliminated, with fewer awards, more restrictions, and a greater dependence on tariffs to carry out the tasks that direct subsidies were meant to perform.
The effects on the market are manifesting in subtle ways. A number of previously proposed fab expansions have been postponed without being formally canceled. Vendors of equipment who committed to the first buildout schedule are recalibrating. Capital allocators who previously saw exposure to U.S. semiconductors as a one-way wager are now paying closer attention to every headline pertaining to CHIPS. This does not amount to a collapse. However, it does represent a slowdown, and slowdowns in the production of semiconductors are difficult to overcome. Lead times for skilled labor, equipment acquisition, and fabrication are measured in years rather than quarters.
It’s possible that the tariff-based strategy results in a different but nonetheless useful version of the same objective: a reorganized American semiconductor base supported by a wall of import taxes as opposed to a flood of federal funding. There’s a good case for it. Theoretically, tariffs boost the economics of domestic manufacture by increasing the price of chips created abroad. The issue is that while the new factories that the tariffs are intended to fund won’t be operational for years, the U.S. consumer and corporate IT sectors absorb those costs in real time. The kind of timing issue that undermines industrial policy is the discrepancy between the onset of expenses and the onset of benefits.
The worldwide context also doesn’t stop for political shifts in the United States. With a growing emphasis on the mid-range process nodes that produce the majority of industrial electronics rather than the cutting-edge chips favored by TSMC, China has continued to invest hundreds of billions of dollars on its own state-backed semiconductor ecosystem. Taiwan is still tightening its hold on the absolute frontier. With fewer political reversals, the EU, South Korea, and Japan each have their own parallel industrial strategies. In terms of talent, capital, and ecosystem maturity, the United States had a significant advantage at the start of this race. That hasn’t vanished. However, the last two years’ momentum has quantifiably stagnated.
The larger pattern is difficult to ignore. Historically, American industrial strategy has had difficulty surviving the administration that initiated it. The CHIPS Act was intended to be the exception, a piece of legislation with infrastructure-level investments that would endure political change over several decades. The law was intended to address the question of whether the United States can maintain the lengthy timelines necessary for semiconductor manufacture, which is raised by the current trend. The factories that opened on time are operational. Now, those who weren’t quite prepared are functioning in a different policy environment. For the first time since the bill’s passage, it is truly unclear if the next round of investment will occur at all.