The US wants to become self-sufficient in advanced technologies, home to robust domestic manufacturing, and revitalize its defense industrial base.
President Trump’s recent decision to extend his tariff deadline to August 1 shows how difficult it will be to deliver on this vision. Ultimately, even the strongest fortress needs outside supply lines.
The sooner the Trump administration acknowledges this basic economic and technological reality, the better chance it will have of avoiding serious damage to US growth and other priorities, like keeping the US ahead in its technology competition with China. At the same time, the US’s European and Asia-Pacific partners need to acknowledge that populist political pressures and legitimate security concerns mean there is no going back to the status quo ante of unencumbered trade.
For the US administration, the political appeal of pulling up the drawbridge is clear. President Trump believes global trade has weakened America by destroying factory jobs. A bipartisan Washington consensus exists that relying on Taiwan for the world’s most advanced semiconductors, or on China for critical minerals to networking gear, puts US economic and national security at risk.
The Trump administration hopes tariffs will drive manufacturing back onshore, from steel to advanced semiconductors, and bring back factory jobs. It also wants to raise money from import duties to help fund the US government. But making everything in the US is unrealistic. Some goods critical to the administration’s strategy have never been made in America. For others, reshoring is unlikely to happen fast enough or at a sufficient scale to cover US needs as technology competition with China intensifies.
Rare earths are a case in point. After US production peaked in the 1980s, the technology and engineering know-how needed to extract and refine rare earth elements into metals and alloys that can be used in essential technology components were developed in China, not America. While a few pilot projects now operate in the US, developing a comparable end-to-end domestic supply chain could take years.
Producing enough American-made semiconductors to cover domestic needs will also be challenging. During the Biden administration, subsidies under the CHIPS Act aimed to encourage enough investment in US domestic chip production to ensure that demand for defense and other critical applications could be covered by US-based chip facilities.
The Trump administration now wants to use tariffs as a lever for forcing a far greater share of chip capacity onshore. But manufacturing cutting-edge chips is hard to scale. Doing so at commercially viable yields requires teams of specialized engineers to spend months on-site installing equipment and troubleshooting production lines. The expertise required to do this often isn’t written down. It exists as “tribal knowledge” inside high-performing teams. That makes it hard to replicate, and limits the manpower and know-how available to scale up US advanced chip production.
Existing capacity is limited. After significant delays, Taiwan’s TSMC’s first advanced US production line is manufacturing chips at the four-nanometer node, but output is booked through 2027. Even though TSMC plans a $165 billion investment in three additional advanced lines in Arizona to produce next-generation chips by 2030, two-thirds of its most advanced chips will still be made in Taiwan.
While these investments in US production mature, tariffs will increase the cost of both consumer goods and the digital infrastructure needed to compete with China. The Information Technology and Innovation Foundation (ITIF), a US-based technology think tank, estimates that chips alone account for around 60% of server farm costs. That means a 25% chip tariff could increase datacenter construction costs by 15% – a significant dollar figure given hyperscalers’ plans for hundreds of billions of datacenter investments in the coming years. That’s not counting tariffs on steel, aluminum, and other components that may face additional levies.
Higher costs for these inputs risk slowing domestic investment and putting US companies at a disadvantage in the global market. Counting on a wave of AI-enabled factory automation to cover shortages of skilled labor and higher employee costs likely puts too much stock in Silicon Valley hype; stiff competition in robotics from China means any comparative advantage may be fleeting.
The US will eventually have to reckon with the fact that it can’t fully onshore everything and that its prosperity depends on reliable foreign partners. America will also have to continue to grapple with a reliance on China for critical inputs, especially rare earth elements and other critical minerals, while investments aimed at diversifying supply sources, such as the July 2025 MP Materials investment announcement, slowly come online.
At the same time, there’s no returning to unfettered global trade. Supply chain vulnerabilities and geopolitical tensions aren’t disappearing. European countries, in particular, will find it increasingly difficult to separate economic security and national security when facing overcapacity, technology theft, and weaponized interdependence.
An alternative approach could prioritize investment in friend-shoring, shared technology development, and the pursuit of new trade structures that address economic and national security considerations. Europe, Japan, Korea, and Taiwan each have advantages in key technologies that will be difficult to replicate and fully onshore in the US: from photolithography equipment to precision manufacturing tools, to chemicals, to specialized chips.
Europe should be willing to explore new trade frameworks that acknowledge security vulnerabilities alongside commercial interests. The US, meanwhile, will have to acknowledge that its current approach to trade does not serve its long-term interests. The former will require political flexibility and a willingness to go beyond World Trade Organization frameworks; the latter will become more likely as the costs of tariff-related disruption and uncertainty start to hit corporate profits, cash flows, and financial markets.
Kevin Allison is a Senior Fellow with the Technology Policy Program at the Center for European Policy Analysis. He is the Founder and President of Minerva Technology Futures, a geopolitical intelligence and policy advisory firm specializing in artificial intelligence and its associated technology stack. Earlier in his career, Kevin spent over a decade as a financial journalist for the Financial Times and Thomson Reuters, where he reported on Silicon Valley, energy and mining, the auto sector, and corporate finance.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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