Trump’s tariffs are used as a tool to resolve issues far beyond the area of international trade.
In that sense, Trump policies are not protectionist, but rather proactive.
Sandy Chou
29 September 2025
The long-awaited tariff rate imposed by the US on EU exports was recently announced to be 30% of all imported EU products shipped to the US. After further meetings between the US and EU, the rate was dropped to 15%. This rate is higher than that for the UK, but significantly lower than for China, seen as a competitor but also an important trade partner for both the US and the EU. The EU has long been preparing for this on many fronts. In the semiconductor industry, planning started during COVID when significant disruption of the semiconductor supply chain arose. The enactment of the EU Chips Act and expansive investment and subsidies for the ESMC (European Semiconductor Manufacturing Company, a joint venture with TSMC) and for other supply chains laid a solid foundation for a self-reliant European semiconductor ecosystem. Since last year, accelerated EU investment continues in cloud computing, sovereign AI, digital infrastructure and green energy.
Trump’s tariff policy has impacted the EU semiconductor industry in several ways, independent of the recent rate announcement. First, it has caused or contributed to a lagging demand in the industry outside of the US. For a long time, the EU chip demand mainly came from the car industry. China, being a major cause of the US trade deficit, has shifted its target market and dumped its products around the world. The post-COVID momentum provided by government subsidies in China quickly turned the country towards manufacturing overcapacity. While this overcapacity might not necessarily lead to a large-scale economic recession, dumping is a natural solution to any export-oriented country facing overcapacity issues.
The explosive demand for sovereign AI, data centers and supercomputing could alleviate the concern regarding lack of demand for EU-manufactured chips. With ESMC going to full capacity in 2027, it is inspiring that the cluster effect brought by the Dresden semiconductor fab is forming all over Europe. In France, Foxconn is cooperating with Thales and Radiall to build an advanced packaging and testing center. In Germany, TSMC is planning a chip production process design center in Munich, where Infineon’s headquarters are located. In the Czech Republic, more than ten Taiwanese semiconductor suppliers have for the first time gathered in Usti and Brno, the location chosen owing to its proximity to ESMC in Dresden. The EU Chips Act subsidies also provide momentum for GlobalFoundries and Intel to expand in Germany, Ireland and Poland, although Intel’s Magdeburg investment in Germany and assembly and testing facility in Poland have been postponed.
The US continues to try to dominate the chips race worldwide. President Trump’s made-in-USA or face high tariff policy has successfully recruited CC Wei, TSMC’s CEO, to pledge more than one hundred billion dollars (about eighty-five billion Euros) to expand TSMC’s fab in Arizona. The announcement was made in the White House, with TSMC devoting its capacity to fulfill its US clients’ need, and the US’s declaration of its dominance in the industry. This biggest single foreign direct investment in US history will include three fabs, two advanced packaging and testing centers, and one R&D center.
The continuously growing demand from the US private sector, especially from AI developers, along with Trump’s policy of bringing manufacturing jobs back to the US could hamper the subsidies-driven efforts by the EU. After the White House press conference, TSMC’s CEO CC Wei announced that TSMC can retain its status as the most advanced and dominant chips manufacturer without any government subsidies. It is likely Wei was referring to the subsidies promised by the US Chips Act. His statement implied that the Trump administration might have done away with these US Chips Act subsidies. Within a week, Trump was asking Congress to get rid of the US Chips Act.
Trump’s tariff policy offers an attractive alternative to China for semiconductor vendors, while the EU’s general reaction to the trade war is to have more reliance on Chinese manufactures. However, if the EU has trouble proposing any solutions to resolve the Chinese dumping problem, or to avoid PUA tactics (defined below), Trump’s tariff policy might continue to incentivize semiconductor supply chains to move to the US, rather than to the EU.
PUA stands for pickup-artist, also nicknamed as “the China Cycle” by economist Noah Smith. International companies put their factories in China, aiming to take advantage of China’s cheap labor and huge market opportunities. The core technology of these international companies ends up in the hands of Chinese companies, which mass produce with even lower costs to squeeze the international companies out of the Chinese market. Eventually, the Chinese companies outcompete the international companies in the world market and the price of Chinese goods is so low that the international companies go out of business. Chinese manufacturers monopolize the market, and use their monopoly power to achieve Chinese policies beyond just trade. The semiconductor industry was somewhat shielded from this cycle because TSMC and other related businesses were prohibited by the Taiwanese government to build advanced chips fabs in China since 2009.
The US Chips Act is not the only semiconductor initiative that faces changes during Trump’s second term. The Framework for Artificial Intelligence Diffusion or AI Diffusion Rule, published just before the end of the Biden administration, was officially rescinded. Trump completely set aside the Rule when he visited United Arab Emirates (UAE) by letting UAE have a chance to import more than 1 million advanced chips to build its AI data centers. The media had reported that TSMC was even instructed by Washington to build chip manufacturing plants in UAE.
UAE, and most countries in Europe, are among the so-called Tier 2 countries according to the AI Diffusion Rule. The Rule divided countries in the world into three tiers, with Tier 1 countries having unlimited access, and Tier 2 have restricted and rationed access to advanced chips. Since the Rule aims to prevent diversion of advanced chips to Tier 3 countries, mainly China, Tier 3 countries are shut out from any imported AI chips. Tier 2 countries include the majority of the countries in the world, whereas Tier 1 has 18 countries, including close NATO allies of the US. Twelve European countries made it to Tier 1, but the selection seemed random and hardly justified.
Now that the Rule is out of the way, the EU is no longer divided into two groups of countries in terms of procuring AI chips. The EU can direct its AI aspirations via market need rather than having their sovereign AI controlled by Washington at every step of the way. However, the European countries still need to take measures to avoid being viewed as potential diversion hubs for advanced chips. Under Trump’s tariff policy, this “chip war” has escalated from a technological race to a resource competition around the factors of AI, which include computing power, data and algorisms.
Trump is using tariffs to change countries’ behaviors. It is more obvious in Trump’s second term that tariffs are used as a tool to resolve issues far beyond the area of international trade. In that sense, Trump policies are not protectionist, but rather proactive. Critics argue that Trump’s tariff policy is making the US retreat from the EU market and give up influence to China. That logic will more likely lead to an incorrect conclusion. The UAE chips deal in preparation for its data center construction demonstrated the benefits US allies may receive. These allies are not defined in the traditional sense.
Similarly, Trump’s policy in restricting China’s access to advanced chips differs from the shut-down approach in the AI Diffusion Rule. If UAE can be upgraded to a tier 1 country, some advanced AI chips can be sold to China, as long as the technology available to China is still a few generations behind the US
The Trump administration is trying to fundamentally slow down (although not completely restrict) the rise of China’s AI by tightening China’s access to certain advanced chips, cloud computing and US sensitive data used to train China’s AIs. If any country does not comply with the US semiconductor export framework, tariffs may be imposed to correct this non-compliance.
Over time, the US aspires to build a global standard based on its own AI tech stack, just as the US dollar serves as a standard of the global currency. The US has more than just advanced AI chips for bargaining, because now the tariffs are used to prevent, among other things, AI chips diffusion.
If the EU incorrectly reads the situation and resists alignment with the US, there is a high risk of tariffs and sanctions which could cripple the European semiconductor industry, a risk that would not be offset through alignment with non-allies.
