In recent decades, the United States semiconductor industry has faced both triumph and turmoil, proving that when it comes to chips, the stakes are never just small potatoes.
From the mid-20th century, when America dominated global chip production, to today’s complex landscape, the story of US semiconductors is one of innovation, competition, and national security stakes.
Semiconductors – tiny silicon chips powering everything from smartphones to AI data centres – remain vital to the economy, defence, and emerging technologies.
Yet, despite America’s legacy as the birthplace of semiconductors, domestic manufacturing now lags, making the nation dependent on foreign suppliers, particularly Taiwan.
The history: from silicon dreams to overseas teams
The modern semiconductor industry was born in the United States. In the late 1950s, researchers at Texas Instruments and Fairchild Semiconductor independently developed the integrated circuit, enabling the mass production of complex electronic systems. The clustering of talent and capital around Fairchild in California gave rise to Silicon Valley, a region that would become synonymous with tech innovation throughout the world.
Throughout the 1960s and 1970s, the US led the world in both semiconductor design and manufacturing. Companies such as Intel, Motorola, and Texas Instruments operated large-scale fabs domestically, supported by substantial government spending on defence, space exploration, and computing. By the early 1980s, the US accounted for close to 40% of global semiconductor manufacturing capacity.
Yet this dominance slowly began to erode as the industry globalised. Japanese manufacturers, supported by coordinated industrial policy and aggressive investment, captured large portions of the memory market in the 1980s.
In response, many US firms shifted away from capital-intensive manufacturing and towards higher-margin activities such as chip design, intellectual property, and software. The rise of the fabless-foundry model in the 1990s accelerated this shift. US companies including Qualcomm, NVIDIA, and Broadcom focused on design, while manufacturing was outsourced to specialist foundries overseas.
When the chips are down
By the early 2000s, the economic logic of offshoring was firmly established, as building and upgrading fabs required tens of billions of dollars while competitive pressures compressed margins.
Although American companies retained leadership in innovation and system-level design, the physical production of chips increasingly took place in Taiwan, South Korea, and, more recently, China.
Taiwan Semiconductor Manufacturing Company (TSMC), founded in 1987, refined this model, offering cutting-edge manufacturing at a scale and cost that US firms struggled to match.
Today the company is the world’s largest semiconductor manufacturer, making chips for all sorts of tech devices and for clients including NVIDIA.
Meanwhile, according to Boston Consulting Group, between 1990 and 2020, the US share of global semiconductor manufacturing fell from roughly 37% to around 12%.
The reasons for this were clear: the cost of building advanced fabs rose sharply with each technology generation, while overseas competitors benefitted from sustained state support that lowered both capital and operating costs. Financial markets increasingly rewarded asset-light business models, encouraging firms to divest manufacturing and concentrate on design.
Chipping away at national security
The shift delivered efficiency gains but introduced systemic risk. Today, semiconductor manufacturing has a clear choke point. TSMC alone is reported to be responsible for approximately 68% of global chip manufacturing and around 90% of the most advanced chips.
A nine-month investigation into imports of semiconductors, semiconductor manufacturing equipment, and derivative products by the US government last year found that the United States currently fully manufactures only approximately 10% of the chips it requires, leaving it heavily reliant on foreign suppliers – a “significant economic and national security risk”.
The concentration of so much capacity within a single company and geography has become a major concern for successive US governments, particularly as chips underpin everything from consumer electronics to military systems.
Former President Joe Biden made semiconductor manufacturing a central focus of his industrial and national security strategy. Most notably, he signed the CHIPS and Science Act into law in 2022, authorising around $52 billion in federal subsidies and incentives to revitalise domestic chip production and related research.
Tariff wars: crunch time for chips
Since Donald Trump returned to power last year, he has gone even further, introducing a series of tariff measures targeting semiconductors and related products.
Early in the policy rollout, the President announced intentions to impose tariffs of up to 100 % on imported chips and semiconductors unless companies invested in US manufacturing, with exemptions for firms building fabs domestically.
In August 2025, speaking in the Oval Office with Apple CEO Tim Cook, he stated: “We’ll be putting a tariff of approximately 100% on chips and semiconductors. But if you’re building in the United States of America, there’s no charge.”
In January, Trump issued a proclamation imposing a 25% tariff on a narrow set of advanced, high-performance logic semiconductors and related AI chips.
The administration highlighted that this action is part of a broader strategy to incentivise domestic manufacturing, reduce dependence on foreign supply chains, and strengthen US technological leadership, particularly in AI.
In a critical parallel move, the United States and Taiwan finalised a trade deal on 15th January 2026. The agreement cuts tariffs on many Taiwanese semiconductor exports and directs new investments into the US technology industry. TSMC and other chipmakers expanding production in the US can import semiconductors and wafers duty-free during approved construction periods, while broader tariffs on other Taiwanese exports fall from 20% to 15%. Generic pharmaceuticals, aircraft components, and “unavailable natural resources” face a 0% tariff.
In exchange, Taiwanese companies committed to invest $250 billion in US semiconductor, energy, and AI industries, including $100 billion already pledged by TSMC in 2025. An additional $250 billion in credit will support further investment.
Secretary of Commerce Howard Lutnick said that the goal is to bring 40% of Taiwan’s entire chip supply chain and production to the United States. Without building in the US, tariffs could rise to 100%, incentivising onshore production while strengthening the domestic supply chain.
The deal is expected to boost US chipmaking suppliers, including ASML, Lam Research, Applied Materials, Sumitomo, and Qnity Electronics, many of which already have operations in Arizona. TSMC plans a fourth Arizona factory and the first advanced packaging plant, providing opportunities across fabrication, chemicals, equipment, and materials
Chips on the table: semiconductors feel the crunch of tariffs
The result of all of this is that semiconductor manufacturers and designers are facing a complex mix of pressure and opportunity under the new Trump administration policies.
Firms such as NVIDIA and Intel have publicly welcomed the exemptions for chips used in data centres, research, startups, and other technology-critical applications, viewing them as incentives to expand US production without disrupting ongoing operations. Nonetheless, in their most recent financial statements, both firms voice concern about the increasing uncertainty the evolving US trade policies are bringing to their operations.
Moreover, despite the scale of investment, capital alone is not sufficient. Producing semiconductors requires hundreds of different chemicals, materials, and gases, many at ultra-high purity levels. If even one input is missing or delayed, production can grind to a halt.
According to a McKinsey analysis, for more than half of critical US supply chains, domestic capacity will not meet projected demand by 2030. Critical inputs such as ultra-high-purity hydrogen fluoride, necessary for etching silicon dioxide, are almost entirely imported from Asia.
Talent shortages compound supply chain constraints. McKinsey estimates that an additional $250 billion in semiconductor investment could generate around 160,000 new jobs across engineering, technician support, construction, and trades. Yet only around 1,500 engineers currently enter the US semiconductor industry each year, while demand could reach 88,000 by 2029.
“Closing the domestic supply gap is about more than money – it requires a resilient supply chain, a skilled workforce, and careful operational planning,” says Guttorm Aase, Partner at McKinsey & Company. “Otherwise, even the best incentives won’t prevent bottlenecks.”
This article originally appeared in the March/April issue of Procurement Pro
