☕ Why semiconductors matter

Good morning.

One of the most important news stories in the world right now - a new study has confirmed that, yes, wearing socks to bed may help you sleep better.

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Some headlines from this morning:

• A federal judge has ordered four US immigration officials to provide documentation and answer questions under oath regarding actions they have taken to facilitate the return of a mistakenly deported non-US citizen currently imprisoned in a Salvadorian super prison. The judge said she would not hold the government in contempt of court despite its non-compliance with a previous order last week. The US Supreme Court has also directed the government to comply with the federal court order.

• Chinese airlines have reportedly been ordered to pause all purchases from US aviation manufacturing giant Boeing. The direction of the Chinese government comes amid an escalating trade war after the Trump administration announced a 145% tariff increase on goods imported from China. Under an existing deal worth billions of dollars, Boeing was expected to deliver 179 of its jets to Chinese carriers before 2027. The future of the agreement remains uncertain, according to a Bloomberg report. Beijing has also asked carriers, including Air China, China Eastern Airlines and China Southern Airlines, not to buy equipment and parts from US companies.

• Authorities have revealed details of an investigation into the death of actor Gene Hackman and his wife, Betsy Arakawa, in February. Emails, phone calls, and internet searches by Arakawa detail searches for medical information, including management strategies for specific symptoms like dizziness, nosebleeds and severe respiratory distress. Hackman is believed to have died about a week later, with authorities stating the cause of death as heart disease with complications from Alzheimer’s disease.

• Mark Zuckerberg has taken the stand in a major antitrust trial, with the Federal Trade Commission seeking to split up Meta’s portfolio of Facebook, Instagram, and WhatsApp. Among the evidence provided was a memo by Zuckerberg in 2018 in which he entertained “spinning Instagram out as a separate company” because of antitrust concerns. Zuckerberg defended the decision to purchase Instagram, saying he thought “Instagram was better” than anything they could develop internally.

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President Trump has suggested that Harvard University could lose its tax-exempt status after publicly refusing to comply with a five-page list of administration demands.

It’s the latest move by the administration against the Ivy League institution. Hours after its demands were refused, the administration froze $2.2 billion in federal grants and $60 million in contracts relating to research funding.

Harvard is the wealthiest college in the country, with a collection of assets called endowments totalling $53 billion. Fresh taxes on these endowments would reach into the millions.

Some background

Since January, the Trump administration has investigated universities over suspected antisemitism, DEI hiring and admissions practices, and alleged pushing of far-left ideologies on students.

After targeting Harvard’s federal funding, the administration sent a letter demanding measures such as government oversight of hiring, viewpoint audits, and reporting on rule-breaking international students.

Harvard rejected the demands, citing concerns about free speech. Hours later, over a quarter of its federal funding was frozen.

Tax exemptions

US universities are generally exempt from federal taxation because the Internal Revenue Service (IRS) classifies them as educational institutions, which the law recognises as providing a widespread public benefit.

The US president does not have the power to remove this status.

However, the IRS can remove the tax-exempt status if it finds that Harvard has been engaging in political campaigning or lobbying, as the administration alleges.

So, will it happen?

On Tuesday, the White House Press Secretary called on Harvard to apologize for its “continuing tolerance of antisemitism.” Still, no further details regarding moves against Harvard’s tax status have been released.

Harvard has not responded to the threat, but some suggest recent actions indicate the institution has been preparing to push back against the government, including borrowing $750 million from Wall Street and launching legal challenges.

Former President Obama, an alumnus of Harvard, praised its defiance and called the funding freeze “unlawful and ham-handed.”

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After exempting semiconductors from blanket tariffs, President Trump announced plans for product-specific tariffs on them. To do this, he’s invoking Section 232 of the Trade Expansion Act, which allows import restrictions on products tied to national security.

A probe is a required step for the President to access powers under the Act. Now, Commerce Secretary Howard Lutnick has taken steps to progress the probe, inviting public comments for 21 days.

So, what are semiconductors, and why are they a national security concern?

Gatekeepers

Think of semiconductors as precise gatekeepers for electrical signals. They act like control gates along a canal, deciding when, where, and how much electrical current flows.

Combining millions of these gates turns simple electrical currents into complex, intelligent operations that power modern electronics.

Semiconductors are vital because they control the functions of modern electronics like smartphones, computers, and cars.

They also form a vital part of the internet’s infrastructure, energy grids, and military tech.

The recent global AI race has elevated the importance of semiconductors, which are key to AI's operation.

Seems important. Who makes them?

Semiconductors are a national security concern because 90% of the world’s supply comes from Asia, with the US buying over half its semiconductors from the Taiwan Semiconductor Manufacturing Company (TSMC).

In 2021, significant disruptions to the semiconductor supply chain caused by the COVID-19 pandemic and political tensions in Asia drew concerns from lawmakers who asserted the US was overdependent on Asia’s supply of the essential component.

Experts warned that rising global tensions could cut off the US and its allies from critical semiconductor imports, creating a major strategic risk.

What’s happened so far?

Under the Biden administration, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Sciences Act was passed, which allocated $57 billion to increase domestic semiconductor manufacturing.

After the CHIPS Act was passed, TSMC announced a $100 billion investment in domestic manufacturing and began constructing the first of three semiconductor factories in Arizona in 2024. Other companies announced the construction of factories in New York and Ohio.

The Trump administration's action plan

President Trump has been critical of the CHIPS Act, calling it a “horrible, horrible thing” and asking Congress to repeal the legislation. 

Instead, the administration has said tariffs are the most effective tool to boost onshore production of semiconductors. 

As part of the new probe, the President said a focus would be placed on the national security concerns of the current semiconductor supply chain, adding that the US would not be “held hostage” by China. 

What’s next? 

Investigations under the Trade Expansion Act must be completed within 270 days. 

However, yesterday’s announcement that public comments would only be accepted for 21 days indicates the probe could be completed much sooner.