For months during the presidential campaign, Donald Trump was vocal about his criticism of the CHIPS and Science Act, the Biden administration's $52 billion funding law meant to spur the build-out of a domestic semiconductor manufacturing ecosystem.
Trump was clear on his intent to pivot away from federal subsidies and towards tariffs, hoping to entice companies to onshore production in a bid to avoid import tax hikes.
Now that he's in office, the president is beginning to take action against the law and those tasked with carrying it out. Last week, reports began surfacing that mass layoffs could be looming at the Department of Commerce’s National Institute of Standards and Technology, which also works closely on portions of the CHIPS Act, including funds disbursement.
The Department of Commerce did not reply to a request for comment on possible layoffs.
Trump made new calls for broader federal cuts on Wednesday, when the administration's Office of Management and Budget issued a memo demanding agency heads prepare to enforce "large-scale reductions in force" no later than March 13.
"Agencies should focus on the maximum elimination of functions that are not statutorily mandated while driving the highest-quality, most efficient delivery of their statutorily-required functions," the memo stated.
Such cuts could undermine the Commerce Department's ability to carry out the merits of the law and its billions of dollars in funding contracts to semiconductor makers like Intel and TSMC, said Jack Gold, founder and principal analyst at J. Gold Associates.
"The writing on the wall isn't particularly good," Gold said. "The truth is that if there's nobody to administer the program, the program goes into this big black hole."
The majority of CHIPS funding to semiconductor manufacturing projects has been finalized, but not disbursed, leaving billions of dollars in possible limbo if the contracts aren't carried out. And if the money is pulled back, it could leave projects with gaping funding holes, Gold added.
"I don't know where they're going to get the money from. We're talking about billions [of dollars]," Gold said.
Some projects are already facing uncertain futures. For example, Intel, which intends to use its $7.9 billion in CHIPS money that was finalized in November on projects in Ohio, Oregon, Arizona and New Mexico, has already delayed construction timelines and has struggled against revenue declines in recent quarters.
The fallout if the law is rolled back or funding is rescinded would extend beyond the projects themselves — suppliers set up shop with the plan to contract with the semiconductor makers, as well as other supporting infrastructure and workforce development programs.
"If that goes away, that's a big chunk of a local economy that will never develop. So we're not just talking about money for Intel here, we're talking about money for Ohio. It's housing, it's supermarkets, it's the whole local economy, there's a whole food chain here," Gold said.
Under the Biden administration, the Commerce Department touted a goal for the U.S. to produce 20% of the world's leading-edge logic chips by the end of the decade. Such production goals are increasingly lofty, said Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics.
Hufbauer co-authored a report in January on the effectiveness of the CHIPS Act, in which the authors stated that to reach the 20% goal, additional federal subsidies would likely be needed, and even then, "significant challenges remain." Now, those challenges could be far greater.
"The only way you could meet those goals would be to double down on the subsidies with a combination of the CHIPS Act and investment tax credits," Hufbauer said. "Trump doesn't like subsidies handed out by Commerce, so that's not going to happen."
Despite experts' gloomy outlook for the domestic semiconductor industry, both Hufbauer and Gold said that the law, which was passed with bipartisan support, could potentially be saved with enough support and pushback from Congress.
Many of the projects are in red states such as Arizona, Indiana and Ohio, making it possible that congressional officials would push to keep them, and the jobs they promise to create, in place.
"I think the opposition from senators and congressmen from those states will prevent Trump from clawing back the money or using [Elon] Musk to find some reason not to pay the money," Hufbauer said.
Ultimately, much remains unknown about how Trump will carry out spending cuts and what from the CHIPS Act will remain for the future.
"It's going to be a really rocky road. Does Congress come and say we passed this and say make it happen? That's really what it boils down to," Gold said. "There's a lot we don't know yet. Trump has been known to change. It could happen.”
