With 50% tariffs now on Chinese semiconductors, both the United States and China are investing heavily in domestic chip production. This article examines the $52 billion CHIPS Act, export controls, and the broader technology competition reshaping global supply chains.

The 50% Semiconductor Tariff

Tariffs on Chinese semiconductors were raised to 50% in May 2024 under the Biden administration's Section 301 review. This built on earlier 25% tariffs and reflected growing bipartisan consensus that semiconductor supply chains posed national security risks.

The tariff applies to chips and integrated circuits under HS codes 8541-8542, affecting everything from simple components to advanced processors. Combined with export controls that restrict China's access to advanced chip-making equipment, the measures represent a comprehensive effort to reshape the semiconductor industry.

The CHIPS and Science Act

The 2022 CHIPS and Science Act allocated $52 billion in subsidies for domestic semiconductor manufacturing and research. Major investments have followed, including new fabrication plants from TSMC in Arizona, Samsung in Texas, and Intel expansions across multiple states.

However, progress has been slower than hoped. Construction delays, workforce shortages, and the sheer complexity of advanced chip manufacturing have pushed timelines. Most new fabs won't reach full production until 2027 or later.

China's Response: DeepSeek and Industrial AI

The emergence of DeepSeek in early 2025 demonstrated China's continued AI capabilities despite export restrictions. Chinese companies have proven resourceful in working around limitations, developing efficient models that require less advanced hardware.

Perhaps more significant is China's progress in industrial AI—applications for logistics, ports, manufacturing, and energy systems. While the US focuses on breakthrough AGI, China is building what analysts call "fast, cheap, ubiquitous applied AI with immediate economic effect."

Supply Chain Restructuring

The tariffs and export controls are accelerating a broader restructuring of semiconductor supply chains. Companies are diversifying away from China-concentrated production, with new investments in Vietnam, India, and Malaysia.

For legacy chips—older-generation semiconductors used in everything from cars to appliances—China remains a dominant supplier. Complete decoupling is impractical, and the November 2025 US-China deal included provisions for resuming trade in critical legacy chips from facilities like Nexperia's Chinese operations.

The Capital Question

A growing debate in Washington centers on whether American capital should help fund China's technological breakthroughs. While export controls restrict technology transfer, US investors continue to pour money into Chinese tech companies.

Proposals for outbound investment reviews have gained traction but face implementation challenges. The line between legitimate investment and technology transfer is often blurry, and overly restrictive measures could harm American competitiveness.