President Donald Trump has vowed to lead the United States in artificial intelligence (AI) research, but he is making threatening remarks about imposing new taxes on the semiconductor industry and changing federal contracts with chip manufacturers.

President Trump stated that he would bring chip manufacturing back to the U.S. by imposing taxes on foreign production of computer chips and semiconductors. He also mentioned that he would terminate the CHIPS and Science Act, a large-scale bill from the Biden administration.

However, economic experts warn that Trump's approach could undermine the goal of maintaining a competitive edge in AI research for the United States.

Chaudhuri, an expert in corporate growth and innovation at UC Berkeley's Haas School of Business, expressed surprise at Trump's critical stance on the CHIPS Act. He noted that one of the biggest bottlenecks in AI advancement is chip production, and most countries are trying to promote chip production and imports at favorable prices.

"We have seen how the chip shortage has impacted everything from AI to even automobiles," he said. "During the pandemic, cars had to use less powerful chips to deal with supply constraints."

The Biden administration began pushing this bill after supply chain disruptions occurred following the COVID-19 pandemic, as the chip shortage threatened to halt factory assembly lines and trigger inflation, putting the U.S. economy at risk of recession. During the push for the bill, politicians also expressed concerns about China's attempts to control Taiwan, which accounts for over 90% of advanced computer chip production.

As of August 2024, the CHIPS and Science Act was expected to support $30 billion for 23 projects across 15 states, creating 115,000 manufacturing and construction jobs. This funding is intended to attract private capital and enable the U.S. to produce 30% of the world's most advanced chips, a significant increase from 0% since the Biden-Harris administration took office after Trump's first term.

The Biden administration has pledged billions of dollars to support the construction of chip foundries in the U.S. and reduce dependence on Asian suppliers. In August, the Department of Commerce announced it would support up to $6.6 billion for Taiwan Semiconductor Manufacturing Company (TSMC) to expand its facility already under construction in Arizona.

However, President Trump has stated that companies like TSMC do not need government support to prioritize chip manufacturing in the U.S. He said, "They needed incentives, and those incentives are to build factories in the U.S. to avoid taxes of 25%, 50%, or even 100%." TSMC held its first board meeting in the U.S. last week. Trump suggested that if companies want to avoid taxes, they should build factories in the U.S. without government support.

The impact of changes to the CHIPS Act on AI growth and consumers is as follows:

 Impact on AI Growth

• Slowing of technological advancement: The CHIPS Act plays a crucial role in promoting domestic semiconductor production, which is vital for AI development. AI systems rely on high-performance chips for data processing and machine learning, and if funding decreases or incentives are removed, advanced chip production in the U.S. could slow down, hindering AI growth.
• Falling behind in global competition: The CHIPS Act aims to reduce dependence on foreign suppliers, particularly those in Taiwan. If the U.S. struggles to expand semiconductor production domestically, it may fall behind countries like China or South Korea, which are heavily investing in AI and semiconductor technology.
• Bottleneck in AI advancement: Professor Chaudhuri from UC Berkeley pointed out that the bottleneck in chip production has hindered AI advancement. A decrease in semiconductor production could slow the development of AI-based technologies such as autonomous vehicles, healthcare AI, and robotics.

Impact on Consumers

• Rising prices of AI products: The CHIPS Act directly affects semiconductor production and pricing. If support for chip manufacturers decreases or taxes are imposed, the prices of consumer products that use advanced chips are likely to rise. This could lead to increased prices for products that heavily rely on chips, such as smartphones, computers, and cars.
• Shortage of consumer electronics: A slowdown in semiconductor production could lead to a decrease in the supply of consumer electronics. The chip shortage during the pandemic also affected automobile production and other industries. If a similar situation occurs, consumers looking to purchase high-tech products may face fewer options or long wait times.
• Increased inflation: Rising chip prices generally pass the cost onto consumers. Therefore, if new taxes or cuts in subsidies occur, consumers may face additional burdens, leading to price increases. Particularly, if price hikes occur in products that rely on technology, it could impact everyday consumer prices.

In conclusion, the impact of changes to the CHIPS Act on AI innovation and consumer experience will depend on whether the U.S. continues to invest in semiconductor manufacturing or withdraws from it. Maintaining this legislation is crucial for preserving the U.S.'s competitiveness in AI and providing consumers with reasonable and accessible technology.