CNBC’s The China Connection newsletter: A slowing economy meets a fast future

A significant legislative initiative led by former President Donald Trump is poised to dramatically reshape and strengthen the United States’ domestic semiconductor manufacturing capabilities. Dubbed the “big, beautiful bill,” this sweeping proposal, which recently gained Senate approval, aims to elevate tax credits for semiconductor firms establishing or expanding capacity within the U.S. to a substantial 35% from the existing 25%. This strategic move underscores Washington’s intensified commitment to fortifying a critical supply chain and bringing advanced chip production back to American soil.

The proposed increase in tax credits marks a notable enhancement, surpassing the 30% boost outlined in an earlier draft of the bill. Key beneficiaries of these elevated incentives are expected to include major global chipmakers such as Intel, Taiwan Semiconductor Manufacturing Company (TSMC), and Micron Technology, contingent upon their expansion of advanced manufacturing operations in the U.S. by a 2026 deadline. This initiative builds upon the foundational framework of the 2022 CHIPS and Science Act, which, under the Biden administration, allocated significant financial support totaling $39 billion in grants and $75 billion in loans for domestic semiconductor projects. However, the comprehensive package must still navigate the House, which previously passed its own version, before these expanded provisions can take full effect.

This legislative push also highlights a distinct policy divergence between the current and previous administrations concerning the best approach to bolstering domestic semiconductor production. While the Biden administration’s CHIPS Act emphasized direct financial grants to incentivize onshoring, former President Trump has consistently advocated for tariffs as the most effective mechanism. He has even, at times, called for a repeal of the CHIPS Act, although Republican lawmakers have shown reluctance to pursue that path. Nonetheless, recent statements from U.S. Commerce Secretary Howard Lutnick indicate ongoing renegotiations of some Biden administration grants, signaling a potential shift in emphasis within the broader strategy.

Further underscoring this difference, the Trump administration is actively conducting an investigation into imports of semiconductor technology, a process that could culminate in the imposition of new duties on the industry. According to Daniel Newman, CEO of tech advisory firm Futurum Group, the very threat of these potential tariffs has already injected a sense of urgency among semiconductor companies to accelerate their expansion of U.S. capacity. This perceived risk, he notes, has become a significant driver for investment, compelling firms to reassess their global manufacturing footprints in favor of domestic operations.

In response to these evolving policy landscapes and economic considerations, a number of leading chipmakers with ongoing or planned U.S. projects have indeed ramped up their investments. Companies like the world’s largest contract chipmaker TSMC, alongside American giants Nvidia, Micron, and GlobalFoundries, are at the forefront of this increased capital expenditure. Experts anticipate that should the increased investment tax credits be enacted into law, these onshoring efforts within the US Manufacturing sector are poised for an even more dramatic acceleration. The credits are viewed as a critical mechanism to offset substantial costs associated with establishing and operating advanced facilities in the United States, further solidifying the domestic supply chain.

Ultimately, this bipartisan albeit differently-approached commitment to strengthening the U.S. semiconductor industry reflects a profound recognition of its strategic importance. From national security to economic competitiveness, a robust domestic chip supply chain is deemed indispensable in an increasingly complex global environment. The ongoing legislative debate surrounding the “big, beautiful bill” and the interplay of various incentives – whether grants, tariffs, or Tax Credits – will undoubtedly shape the future trajectory of advanced technology manufacturing in the United States, impacting not only the tech giants but also countless industries reliant on cutting-edge Semiconductors.