National Security and the CHIPS Act

Chip manufacturing is a central discussion point around US national security and independence from foreign nations. Initially, the concern was the presence of foreign-produced chips in devices ranging from medical equipment and energy infrastructure to missiles and fighter jets. These “foundational chips” have feature sizes of approximately 20nm and above. The Biden administration already incentivised US chip manufacturing development with the CHIPS Act. It offered $56bn in grants and loans to domestic manufacturers, which led to over $350bn of announced private investments to build fabrication facilities (fabs). This allowed the US to be on track to capture about 20% of the global chip manufacturing market share.

The AI Boom and Advanced Chip Dependency

With the AI boom, the focus has shifted to chips for high-performance computing in the pursuit of becoming a self-reliant AI superpower. These are of a size of 5nm or less and are crucial for any AI infrastructure. Currently, the Taiwanese chip manufacturer TSMC has a market share of 90-95% for those chips. Intel, the leading US manufacturer, had fallen behind, but is now producing 5nm and is on track to reach 2nm chips. Samsung is the only other manufacturer comparable to Intel and TSMC. Although Samsung and Intel possess the technology to produce these chips, TSMC retains a significant lead and operates at a significantly larger scale with lower costs for its customers. At the moment, the manufacturing of the most advanced AI chips is, in practice, dependent on TSMC’s resources and technology. Moreover, TSMC only has one fab on US soil, in Arizona, which can manufacture 5nm chips.

Encouraging Domestic Production and Investment

This led the Trump administration to push for diversification in technology due to fears of a possible Chinese invasion. The administration pressured TSMC with both the threat of 50% tariffs on chip exports and the possibility of further subsidies for domestic US manufacturers. TSMC had already committed $65bn to US fabs and pledged another $100bn, making it one of the largest single foreign investments in US history. The options under consideration included spinning off TSMC’s supply chain to Intel, partnering with Intel to share expertise, or a direct equity investment. The $100bn investment will finance two additional fabs for advanced 2nm chips, including packaging facilities and a research and development centre.

Nvidia currently commissions the clear majority their AI chips from TSMC, but in an effort to revert the Trump administration’s ban on selling graphics processing units to China, it has announced hundreds of billion of dollars in investments into US chip manufacturing. Already, Nvidia is now producing its flagship Blackwell’s CPU at TSMC’s Arizona facility. Jensen Huang, Nvidia’s CEO, announced that soon, Blackwell’s processors, memory, and packaging will be fully manufactured in the US. Moreover, through its new “digital twin” AI technology, Nvidia expanded Foxconn’s capacity, another Taiwanese manufacturer, to build fully automised factories in the US and manage them as a mirrored factory of their facilities in Asia. Peter Thiel, a venture capitalist, is also committed to a re-industrialisation of the US tech sector as he is backing London-based entrepreneur James Proud, CEO of Substrate, in setting up a US semiconductor facility with the goal to rival ASML.

Environmental Trade-Offs

In an industry research report, PWC warned of the risks that come with the revival of the US semiconductor sector, starting with the complex environmental trade-offs. The regions with the most operating and planned fabs are Arizona and Texas, which are already water-stressed regions and might experience water shortages as chip manufacturing consumes millions of gallons of water. Additionally, the technology produces hazardous waste and requires the equivalent amount of energy as a small city. This poses the challenge of combining fast-paced growth with environmental goals and long-term sustainability as well as financial feasibility.

Labour and Talent Shortages

Another risk is the shortage of trained talent in the US labour market, which could put pressure on returns of investors and increase costs. With Biden’s CHIPS Act, educational institutions had received funding for programmes associated with the technology, which initiated a shift in the labour force. However, the growth of fabs is exceeding the rate at which new talent is being trained. Additionally, the already high immigration barriers have been further raised as Trump has imposed higher restrictions on H1 skilled worker visas through a new $100k fee. This makes sourcing talent internationally from an already limited pool more costly for manufacturers. Companies have announced training and “re-skilling” programmes as well new certifications in an effort to close the gap between demand and supply in the labour market.

Lingering Foreign Supply Chain Dependencies

Lastly, a research report from McKinsey examined further how a future US chip manufacturing supply chain depends on foreign nations. Their analysis revealed that 40% of companies are unaware of the suppliers behind the chips in their devices in the first place. Moreover, McKinsey discovered a key point of dependence in the required chemical materials for the manufacturing process. They estimated that 60% of supply chains for chemical materials rely on imports from foreign nations and that closing the gap would require a one-time capital expenditure of approximately $9bn.

Sevastopulo, D., Hille, K. and Acton, M. (2025) 'TSMC unveils $100bn US chip investment', Financial Times, 3 March. Available at: https://www.ft.com/content/bec74539-098a-48dd-b0e6-7c33f9d5835e

Bradshaw, T. and Acton, M. (2025) 'Nvidia to spend hundreds of billions on US supply chain, says chief', Financial Times, 20 March. Available at: https://www.ft.com/content/3fd3a717-2fbf-42ef-bb08-5baecdeb1985

Kuiken, M. (2025) 'America risks a dangerous dependence on Chinese chips', Financial Times, 2 October. Available at: https://www.ft.com/content/8ee64d45-c1f6-408f-a1b6-bcd4dfed0a32

PwC (2025) 'Semiconductor supply chain resiliency', PwC, 2 September. Available at: https://www.pwc.com/us/en/industries/tmt/library/rebuilding-us-supply-chain.html

Intel (n.d.) US Semiconductor Manufacturing | CHIPS and Science Act. Available at: https://www.intel.com/content/www/us/en/corporate/usa-chipmaking/home.html

The Economist (2025) 'Led by Nvidia, the AI industry has plans to reindustrialise America', The Economist, 30 October. Available at: https://www.economist.com/united-states/2025/10/30/led-by-nvidia-the-ai-industry-has-plans-to-reindustrialise-america

An Assessment of the Revival of US Semiconductor Manufacturing