Earlier this year, an AI-piloted F-16 conducted its first full dogfight maneuver exercise, demonstrating such proficiency that the pilot was ready to grant the system fire control authority. Yet, this progress could be jeopardized under the incoming Trump administration, whose protectionist policies may constrain America’s access to critical AI hardware.
President-elect Donald Trump’s foreign policy platform is focused on promoting domestic industry, emphasizing tariffs that could affect not only near-peer competitors but also key allies like Taiwan. Trump has promised to reverse AI restrictions from the Biden administration to promote the U.S. AI industry. However, his proposed tariff policies pose significant risks to the global hardware supply chain that underpins AI development. With advanced chips sourced from Taiwan Semiconductor Manufacturing Company (TSMC) and reliant on an intricate global network, these tariffs could severely limit the availability of computational infrastructure essential to America’s AI leadership.
The Vital Role of Hardware in AI Innovation
While software and algorithms play a crucial role in AI advancement, access to cutting-edge hardware remains the foundation for scaling AI technologies. Firms like NVIDIA lead global AI chip design, with their GB200 Grace Blackwell Superchips dominating the enterprise AI space. However, NVIDIA’s reliance on TSMC’s proprietary 4NP nodes for production highlights the vulnerability of America’s AI ecosystem to supply chain disruptions. Trump’s proposed 10-20% blanket tariffs would not only raise costs but potentially destabilize critical relationships with Taiwanese suppliers, which could ripple across the global AI hardware ecosystem.
Tariffs and Their Ripple Effect
Trump’s tariff policies extend beyond China to traditional allies like Canada and Mexico. Microsoft’s AI-focused data center in Quebec City, for instance, could face increased costs due to tariffs on Canadian goods. Similarly, these measures would inflate battery costs, a market dominated by China, further driving up data center expenses and pricing startups out of the AI market.
These constraints threaten the democratized AI innovation model in the U.S., where new entrants like Anduril and Jericho Security have driven groundbreaking advancements. Rising hardware costs would disproportionately affect smaller firms, leaving only major players like Microsoft and Intel in the game. This monopolization could stifle innovation and reduce the competitive edge of the U.S. military’s AI strategy.
China’s Countermove: Centralized Ambitions in AI
In contrast, China’s AI development is bolstered by its centralized “state-capitalism” approach. The creation of the Central Science and Technology Commission in 2023 exemplifies Beijing’s strategy to insulate its technological progress from external pressures, including U.S. tariffs. Chinese firms like Intellifusion are advancing AI capabilities using older technologies, demonstrating resilience under constraints. While export controls and tariffs have slowed Chinese progress, they have also accelerated domestic innovation, positioning China to capitalize on U.S. market disruptions.
Reshoring: A Pipe Dream?
Proponents of protectionism argue that tariffs could incentivize reshoring semiconductor manufacturing to the U.S. However, this vision is challenged by labor shortages and the interdependence of global supply chains. Even Intel, once a symbol of American semiconductor leadership, relies heavily on TSMC for advanced chip fabrication. Without addressing workforce and education gaps, reshoring remains an implausible solution, and tariffs risk further straining U.S.-Taiwan collaboration.
Unintended Consequences for U.S. Security
Tariffs targeting AI hardware will force the Department of Defense to make difficult tradeoffs. Increased costs could be offset through taxpayer-funded subsidies or contracts, but this approach risks eroding the military’s comparative advantage. The democratization of AI innovation—a hallmark of U.S. strategy—would be undermined, leaving the field open for China’s centralized and insulated AI apparatus to gain an edge.
Conclusion: A Fragile Future for U.S. AI Leadership
The incoming Trump administration’s protectionist policies present a paradox for America’s AI ambitions. While aimed at bolstering domestic industry, these measures risk undercutting the very ecosystem that drives U.S. technological and military superiority. By increasing hardware costs, limiting market entry for startups, and straining alliances, tariffs could inadvertently hand China a decisive advantage in the global AI arms race. To maintain its leadership, the United States must prioritize global collaboration, flexible supply chains, and targeted investments that balance national security with innovation.
