Even before the unprecedented supply chain disruptions caused by the pandemic, the United States was grappling with growing uncertainty surrounding the supply of semiconductor chips and other critical tech manufacturing components. These issues had significant negative consequences for numerous sectors of the American economy, particularly the automotive industry. By 2018, increasing dependence on foreign chip manufacturers had already raised concerns about potential supply chain vulnerabilities.
COVID-19 and Global Shortage:
The COVID-19 pandemic exacerbated these concerns. Demand for semiconductors surged for various consumer electronics and industrial applications, while production faced bottlenecks due to factory shutdowns and logistical challenges. In a culmination of negative variables, the chip shortage grew, showing American manufactures that changes needed to be implemented to maintain a readily available supply of not just semiconductors, but raw materials and other components needed to maintain our economy and ecosystems. As COVID gripped the world shutdowns placed a stranglehold on sourcing almost all goods. Raw materials shortages continued to intensify due to capacity restraints, unpredictability of the COVID-19 pandemic, and the unforeseen events that struck chipmakers globally.
Impact on Automotive:
Despite the grip that COVID held over the nation The automotive industry saw a rather unexperienced surge in demand as purchasing behavior shifted as consumers avoided public transportation due to the pandemic and developed an increased desire for new vehicles. With that increased demand came increased supply challenges and the on-going global chip shortage carried a severe impact on the automotive industry. Many car manufacturers had to reduce production, delay model launches, and even shut down assembly lines due to the inability to secure sufficient chip supplies.
2018 US–China Trade War Escalates:
Starting in 2018, the US–China trade war began to unfolded in five phases which were carried out through 2021. The first wave of tariffs that directly impacted chipmaking hit Chinese imports in 2018. It targeted raw materials for chips, such as silicon and reactor tubes and holders designed for semiconductor wafer production. In August 2019, the trade war escalated as Beijing announced it would apply $75 billion in tariffs on US goods. The last phase of US tariffs in September 2019 targeted $120 billion worth of Chinese goods. In 2019, the US and China made an agreement that included structural reforms and changes to China’s economic and trade regime. The hope was that when this agreement later went into effect, it would reduce the back-and-forth tariff increases on imports.
These agreements didn't hold and and tension between the US and China further escalated which resulted in wafer supply hoarding when the US later blacklisted China’s biggest chipmaker, SMIC, in 2020. With many vital parts of the supply chain impacted, US industries reliant on semiconductors feared that restrictions on Chinese imports would lead China to create their own semiconductor ecosystem.
America's Answer to Chinese Chip Manufacturing Dominance:
International governments have also joined the push to increase chip capacity. In July 2022, the United States Senate and House of Representatives passed the CHIPS Act, which includes about $52 billion in government subsidies for research and production of semiconductors in the U.S. The bill also provides chip plants with tax credits worth about $24 billion, with the goal of spurring U.S. chip manufacturing to alleviate some of the supply chain issues hampering the country's automotive and consumer electronics industries, among others.
In 2024, then President Joe Biden, looked to "Protect American Workers and Businesses from China’s Unfair Trade Practices" by increasing tariffs on more than $18 billion of imports from China. At that time President Biden stated, "American workers and businesses can outcompete anyone—as long as they have fair competition. But for too long, China’s government has used unfair, non-market practices." In 2025 President Trump reiterated those concerns and moved to protect our nations workers, national and economic security by impose a 10% tariff on all countries.
Looking to further shrink the gaps between US and Chinese semiconductor manufacturing President Trump announced even more significant tariffs against China and electronics manufactured there. The president believes that tariffs are necessary to ensure fair trade, protect American workers, and reduce the trade deficit that he believes has undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.