Catalyzing Renewal of the US Semiconductor Industry
HORIZON ADVISORY
Horizon Advisory, an independent strategic consultancy and data platform, helps businesses, investors, and government actors understand and respond to geopolitical, economic, and technological change.
A Playbook for Action
Tariff Enforcement and Exemptions
Offense: Leveraging Downstream Demand
Defense: Protecting against Distortions
Monitoring and Enforcement Conclusion
Disclaimer:
Horizon Advisory
Horizon Advisory brings a new approach and unparalleled sources and methods to understanding geopolitics. Horizon Advisory was formed with the mission of analyzing competitive industrial strategy and implications for critical security and economic competitions. Decision-makers across sectors – national security leaders, stakeholders from the private sector, investors – face uncertainty associated with geopolitical, technological, and economic changes. Leveraging unprecedented primary sources, we apply updated strategic frameworks and novel analysis techniques to generate differentiated insights for clients including businesses, investors, and governments grappling with uncertainties.
Executive Summary
Semiconductors propelled American dominance of the information era. The entire history of America’s innovation hub “Silicon Valley” traces back to a semiconductor manufacturer, Fairchild Semiconductor. And the strength of the American semiconductor industry bolstered the American military’s leadership of the information technology revolution in military affairs (IT-RMA). Strength in semiconductors has been a core component of the American excellence story in commerce and security for the past half-century.
That was then.
Now, the United States lags. Foreign sources play outsize roles in every step of the semiconductor value chain. This threatens American self-sufficiency, with it national security. It also threatens America’s future semiconductor capabilities: As they increasingly dominate production, foreign actors are increasingly capturing the innovation that comes from the factory floor. The US domestic semiconductor sector needs a foundational revival.
Pillars of a Demand-Side Semiconductor Renewal Strategy
1. Leverage tariffs to correct distortions in global supply lines
2. Permit short-term “chip-for-chip” tariff exemptions
3. Apply Buy American requirements for national security supply lines
The Trump administration’s trade policy could offer a catalyst. Recent, responsive commitments to domestic manufacturing on the part of America’s dominant downstream champions suggest promise and progress. There are sparks being lit. But those need to be scaled; they need a policy framework that not only ensures follow through on promises of domestic capacity expansion but also locks in demand-driven growth and sustainable renewal of domestic production. Secretary of Commerce Lutnick has laid out an ambitious objective for the administration and the country: He has projected that the United States should aim for 40 percent self-sufficiency in chip production by the end of the Trump term.
The policy framework supporting that ambition should start with results of the Section 232 investigation underway. That investigation is expected to and should provide validation for a path toward enacting aggressive – and enduring – tariffs. Those tariffs can guarantee that “ground breakings” for future domestic production facilities convert to “ribbon cuttings” where facilities
are up and running. Real domestic production – paired with support from downstream domestic champions – is necessary to guarantee that reindustrialization builds on a foundation of American made semiconductors.
The 232 investigation and resultant tariffs are just the beginning. They must be followed with a sequence of policy efforts that build on their leverage to guarantee continued domestic capacity expansion. Tariff enforcement and a robust process for temporally limited tariff exemptions are critical. These should be central to the effort to spur domestic production. And they should be linked to an expanded set of offensive, defensive, and monitoring and enforcement activities to be codified in legislation. This policy suite is necessary to activate downstream demand for US-made chips in an enduring fashion.
An overarching effort could start with tractable pillars like the following:
• The Commerce Department and the US Trade Representative (USTR) should jointly lead an oversight board to vet and approve limited tariff exemptions and to monitor compliance with domestic production expansions (e.g., delivering on “chip-for-chip” promises to develop domestic production that matches import volumes and quality). That board should be armed with the authority to claw back any direct US government support or tariff exemptions from companies that circumvent or otherwise renege on domestic production commitments. Commerce-USTR efforts should also guarantee that any direct government support for downstream industries – whether in the form of tax incentives, R&D grants, or procurement – is tethered to domestic content requirements and integration of supply chains that build on chips from US-based production and that rely on US supply lines. A Commerce-USTR oversight board should operate with a limited temporal scope for tariff exemptions: Chip-for-chip expectations should be the minimal requirement for reduced duty fees and only be available for a period of three years with review and renewal on an annual basis
• The War Department should, in parallel, oversee an expansion of trusted microelectronics programs and an aggressive review of program-level chip demand across program executive offices.
o Reform of the acquisition system should bring intelligence on supply chain dependencies concretely into the requirements defining and analysis-of-alternatives phases of acquisition.
o Prohibitions against foreign produced semiconductors should be phased into acquisition expectations and codified via DFARS.
• Efforts to position for the next generation should similarly codify requirements for domestic content: Buy American provisions should be imposed, with no exemptions, for
the chip-level supply chains of vendors backed by Federal procurement dollars (e.g., the NTIA BEAD program) and in all R&D funded programs across the Federal enterprise.
o Commerce, USTR, and OMB’s Made in America Office should coordinate on the monitoring of Buy American compliance across the Federal procurement marketplace.
o Commerce, USTR, and OSTP should develop and implement due diligence and supply chain vetting requirements across US Federal R&D investments.
Introduction: A New, Demand-Side Framing
The shock of COVID-19 continues to linger across society. The global pandemic destroyed lives and stalled economic progress. It also laid bare the strategic folly of America’s abandonment of its upstream manufacturing sectors – and resultant supply chain dependence The pandemic showed that globalized supply chains are fragile, vulnerable to black swans and to foreign manipulation. As long as America relies on globalized supply chains for critical inputs, for core ingredients in the national economy and national security apparatus, foreign actors have unfettered access to the American homeland and leverage over the American economy and military.
But while this reality, and risk, was widely recognized during the throes of COVID, it was never internalized. Apple and Ford have always registered as global leaders and paragons of American economic influence globally. But, with global supply chains fractured during COVID, those titans suffered. They had little recourse for their dependence on foreign sources of chips. They looked like paper tigers. In the moment, it seemed like they might change course; might start investing in resilient, domestic supply chains. But the reckoning proved fleeting. Five years since the world shut down for a devastating virus from Wuhan, little has changed. Ford, Apple, the American economy, and the American national security apparatus continue to depend on globalized supply chains that are not only fragile but also controlled by foreign adversaries.
“ For national security, we must manufacture our own chips domestically. ”
n Commerce Secretary Howard Lutnick, September 2025
Part of the reason for this continuing weakness is a failure of US policy, and specifically Bidenera US policy. The immediate US policy intervention that followed the COVID wakeup call focused on a heavy government hand spurring supply. The Biden-era CHIPS and Science Act launched an array of government funding initiatives intended directly to support expanded chip fabrication.
That approach has not worked. It has not worked because of simple economic and geographic realities. The global supply chain voted: It is very happy to override one-time, tactical pushes toward change. The market distortions that led to today’s global semiconductor division of labor – including China’s non-market policies and US companies’ embrace of the cheap production those enabled – can easily offset limited supply-side intervention by the US government.
But there are alternative approaches. American policy makers and American industry have a choice. And the Trump administration’s embrace of tariffs provides opportunity. The strength of the US market, of US downstream champions, and of US consumption can be the trigger for semiconductor renewal. This is a demand-side model. But for this to happen requires a clear and enduring signal from policy – to guarantee that guardrails and enforcement, lacking in the Bidenera approach, will be there to back domestic industry and to generate sustained demand for American-made chips.
The forthcoming results of a Section 232 investigation into semiconductors and semiconductor equipment should do two things to send such a signal. First, from a messaging perspective, the results should underscore the national security imperative for resolving the supply chain risk – and doing so in a fashion that endures. Second, the results of the Section 232 investigation should lay the groundwork for aggressive tariffs on semiconductors that have the potential to create market incentives to develop real domestic production.
These tariffs will also create a new challenge for the Trump administration. With tariff enforcement, the administration will have to prove its resolve and ability to deliver on the potential. To that end, exemptions to semiconductor tariffs should be limited and rigidly applied on a “chipfor-chip” basis: For every chip imported, a foreigner producer should be required to generate a domestically produced, equivalent product. The US Commerce Secretary has led in outlining this approach publicly:
The policy’s goal is to have chip companies manufacture the same number of semiconductors in the U.S. as their customers import from overseas producers. Companies that don’t maintain a 1:1 ratio over time would have to pay a tariff.
Such exemptions should only be available for a period of three years. And the prospect of claw backs of tariff exemptions should be leveraged to guarantee that domestic production expansions are delivered.
These immediate steps should be built on through additional expansions of both promote and protect authorities across the US government. Procurement and R&D funding should leverage Buy American provisions to guarantee domestic semiconductor content in the Federal marketplace. Production tax credits should be structured to support capacity expansions. And, at the same time, trade enforcement and foreign investment screening authorities should be on high alert to protect against illegal efforts to circumvent tariffs and to evade security restrictions that protect critical military and networking supply chains from foreign exposure.
A Playbook for Action
Global technology leaders – from Apple to Samsung and HP to Sony – have all embraced the rhetoric of onshoring in the United States. The pressure of the Trump administration’s trade policy and tariff regime have induced a variety of commitments on the part of the private sector to expand domestic production and to integrate domestic suppliers across supply chains.
“ The Trump administration is implementing a nuanced, multi - faceted approach to reshoring critical manufacturing back to the United States with tariffs, tax cuts, deregulation, and energy abundance. ”
n White House Spokesman Kush Desai, September 2025
That trade policy is the necessary starting point for reindustrialization. But its success is far from guaranteed. A suite of “promote” and “protect” policy efforts are essential to guarantee that the reindustrialization push is built on an American-made foundation. The semiconductor ecosystem is the critical linchpin for proving this out.
Immediate Action: Tariff Enforcement and Exemption Processes
The Trump administration’s trade policy and tariff regime has created the opportunity for semiconductor renewal in the United States. Seizing that opportunity requires activating market forces; activating market forces requires tariff enforcement. The results of a forthcoming Section 232 investigation into semiconductors and semiconductor equipment should create context and framework for such enforcement. The Section 232 investigation should also underscore the urgency of the policy moment: Real, enduring changes to America’s domestic manufacturing landscape are possible now – but that opportunity cannot be taken for granted or allowed to be subverted by distorted global supply chains.
To scope and deliver immediate enforcement, the Commerce Secretary and USTR should establish a joint oversight board focused on semiconductor tariffs. This board should leverage existing enforcement personnel and processes extant in Commerce and USTR. This interagency force should prioritize communicating tariff policy and procedure to cover imports of foreign produced semiconductors, semiconductor equipment, and the nature of “chip-for-chip” tariff exemptions available to foreign manufacturers. Tariff enforcement should target attempts at potential circumvention and evasion by foreign importers who may illicitly adjust imported product designations, imported product values, or leverage any “first sale” doctrine declarations that do not comply with US trade law.
In addition, exemptions to those tariffs should be reviewed on a case-by-case basis to ensure capacity, intent, and investment to meet promised domestic production expansion targets. The temporal scope for any exemption should be limited to three years. That timeline should track with the Commerce Secretary’s public objective for semiconductor producers to match their foreign imports and domestic production over time:
Under the new system, if a company pledged to build one million chips in the U.S., it would essentially be credited with that amount over time so the company and its customers could import until its plant was completed without paying tariffs…. companies would potentially have to keep track of where all those chips were made and work with chip makers to match the number of U.S. and overseas products over time.
A monitoring and enforcement plan should be issued along with any issued exemption to guarantee transparent and verifiable compliance terms. And the foundational expectation for any awarded exemption should be, at a minimum, a chip-for-chip commitment that hardwires direct investment into US-based production capacity consistent with not just the quantity but also the quality of goods expected to receive a tariff reprieve of any sort.
Offense: Leveraging Downstream Demand to Fuel Reindustrialization
The US government’s “promote” line of effort for catalyzing the domestic semiconductor ecosystem should not focus solely on investing in fab expansion. Instead, the effort should focus on creating downstream demand in a fashion that activates market forces. The ultimate goal remains the same: Increased domestic production capacity as quickly and sustainably as possible. But the tools to be leveraged toward that end should be different.
To induce downstream demand, US government intervention should create conditions that invite private sector investment – not replace private sector investment. Equally important, US government intervention should protect against the distortive effect of competing international industrial policy orientations. Those typically enter and alter economics in the domestic market via foreign imports. Tariffs can go a long way toward re-setting this balance. But over the long term, they only deliver the desired effect if they are effectively enforced and paired with additional promote lines of effort.
The US government should target the downstream by tethering Federal procurement dollars to trusted upstream supply lines: Technology and equipment vendors competing for US government procurement should validate and receive preferential acquisition treatment for domestic content. Buy American provisions can be leveraged to promulgate this practice across the Federal marketplace. The Federal government should work with state and local authorities to share information on technology and equipment vendors that leverage domestic sources of semiconductors to help shape their procurement efforts in a similar fashion. The dual carrots of tariff relief and domestic content preferences in procurement will amount to a material incentive and provide justification for both US and allied foreign suppliers to invest in US-based production. And the immediate effort dedicated to building out a Commerce-USTR-led capacity for monitoring production expansion commitments under a chip-for-chip regime will give these carrots a corresponding stick.
Those incentives – and oversight mechanisms – should as immediately as possible be hardwired into US Department of War procurement. Efforts pursued through the Department’s trusted microelectronics efforts should be expanded and communicated broadly to program executive offices. Those program-level authorities should be expected to vet and diligence their semiconductor supply chains and develop out-year mitigation plans to correct foreign dependencies within the current Future Years Defense Program time horizon. Ultimately, those procurement restrictions and development efforts should be linked to acquisition reform: The earliest stages of program requirements definition and analysis-of-alternatives should explicitly score semiconductor supply chains as a feature in acquisition roadmaps for military programs.
The government can also catalyze domestic investment all along the semiconductor value chain via an offensive orientation in tax incentives. Production tax credits as well as targeted semiconductor industry R&D and workforce upskilling expense incentives can offer viable options for shifting domestic economics – for semiconductor fabrication as well as equipment manufacture. Preferential tax treatment for investments into the extraction and processing of semiconductor-relevant raw materials should also be explored and can be executed with adjustments to the existing Oil Depletion Allowance framework. Permitting reform can be leveraged to expedite the development of domestic production through modifications of Federal as well as state and local requirements. And authorization and testing of Federally regulated devices should be expedited for those who opt in to validate their domestic sources of semiconductor supply.
Defense: Protecting against Distortions
If they are to succeed, efforts both to leverage tariffs to catalyze domestic production and to establish policy measures to generate downstream demand need additional defensive support. Distortive and illicit trade practices have created America’s current, dependent, vulnerable semiconductor supply chain positioning.
Government defenses should track with the protections built into tariff exemption approvals discussed earlier in this White Paper. In addition, relevant trade enforcement authorities should
prioritize semiconductor importers and downstream customers for scrutiny. Violations of US import requirements concerning declared values or declared product classifications should be acted on, as appropriate, and publicized to send a signal of zero tolerance for evasion of US trade law. Similarly, “first sale” doctrine and roundtripping of foreign country of origin goods should be reviewed in the semiconductor value chain to ensure that the industry’s suppliers and downstream consumers are compliant with existing law.
Foreign investment screening should also be attuned to potential risks that may emerge as the semiconductor value chain reorients. Adversarial nation state actors should be restricted from investing into critical technology, infrastructure, and data operations relevant to the semiconductor industry. And foreign investment should be monitored to guarantee that substantial transformation occurs in the United States such that aby foreign investment supports the actual development of US-based industry and human capital.
These defensive lines of effort should be led by the existing, relevant authorities and bureaucratic stakeholders – spanning equities across Commerce, USTR, the Department of Homeland Security, the Department of War, and the Department of the Treasury. Risks in the must be prioritized in order to deliver on the promise of reindustrializing production in the United States. This constitutes a change in prioritization. But it does not equate to a need for new personnel, processes, or expense within the Federal budget.
Monitoring and Enforcement
Tariff enforcement and corresponding defensive protections as cited above should be the starting point for activating market forces. Monitoring programs should be developed for all tariff exemption approvals for semiconductor imports. And those should authorize immediate claw back of any Federal funds that have been allocated and do not deliver domestic production expansion offsets – as well as any cases where tariff exemption recipients otherwise violate the terms and conditions of their tariff exemption agreements. Such monitoring and enforcement effort should be led by professionals with supply chain and trade policy expertise from relevant hubs of enforcement authority across Commerce and USTR.
The immediate effort will validate that monitoring and enforcement can be executed efficiently and deliver value to the taxpayer with no new staffing or expenditure. And the tariff exemption monitoring framework can, in turn, feed the development of vetting protocols for other forms of Federal support, including any R&D or other support issued by the Commerce Department’s National Semiconductor Technology Center. The Commerce Department and USTR should collaborate with the White House’s Office of Science and Technology Policy (OSTP) to establish vetting and due diligence protocols that can incorporate domestic supply chain considerations into research and development funding evaluations across the government.
Conclusion
Time is of the essence in executing on this vision. The Trump administration appreciates the need to operate with urgency – that recognition has delivered results in terms of domestic investment across technology, energy, and critical material sectors. Now, that bias for action is necessary in order rapidly to shift the direction of policy supporting US semiconductor renewal.
“We must be able to build the chips and semiconductors that we need right here, in American factories”
n President Donald J. Trump, March 2025
Immediate action is necessary. That action starts with codifying the national security risks of semiconductor dependence via the results of a thorough 232 investigation and, thereafter, diligent tariff enforcement. Any potential exemptions to an aggressive tariff schedule should only be permitted on the conditions of a “chip-for-chip” agreement to expand US-based production. And any of those exemptions should be strictly term-limited for a period of three years with an annual renewal process. The Commerce Department and USTR should lead an interagency oversight board focused on formulating semiconductor tariff enforcement processes and vetting exemption requests.
All US government support to the semiconductor ecosystem – whether tariff exemptions, tax incentives, preferential procurement, or R&D backing – should be subject to claw back if industry recipients are determined to have reneged on domestic production commitments or otherwise violated the terms of government support. The same leadership from Commerce and USTR should partner with OMB’s Made in America Office to implement a scheme for monitoring for violation of commitments and enforcing claw backs.
At the same time, the Department of War should shift investments toward restoring deterrence credibility based on trusted semiconductor supply chains. That effort can start from the current scope of existing trusted microelectronics programs and be leveraged as a signal to the broader defense industrial base of future domestic content requirements. Program executive offices should be resourced to vet foreign sources of supply throughout their supply chains. And implementation
guidance should be developed for incorporating semiconductor supply chain risks into requirements definition and analysis-of-alternatives phases of defense acquisition moving forward.
To guarantee that these frameworks are translated into efforts to capture the next generation, OSTP should be tasked to work alongside Commerce and USTR to establish a protocol for vetting and supply chain due diligence that could be incorporated into Federal R&D evaluations.
A wave of follow-on efforts should be pursued in the coming year. Those should focus on guaranteeing that domestic production commitments are delivered – and monitored routinely for compliance with tariff exemptions and other Federal compliance programs. Those should also include expansion of production tax credits for semiconductor fabrication and equipment manufacture and Oil Depletion Allowance adjustments for semiconductor materials. And followon efforts should feature the testing and authorization of technologies and equipment that leverage domestic semiconductor inputs into finished downstream goods. Monitoring and enforcement efforts should prioritize semiconductor-relevant domains to further guarantee a stick that protects against trade remedy evasion and other national security risks likely to emerge as the US government embarks on a campaign of reindustrialization.
