The US semiconductor industry is facing a devastating impact from President Trump’s sweeping tariffs, with the vast majority of semiconductors coming into the US already packaged into products subject to higher import duties. The tariff bonanza threatens to reverse what had been a bumper period for US chipmaking.
The recent announcement by President Donald Trump of sweeping tariffs on various goods, including semiconductors, has sent shockwaves through Silicon Valley. While a narrow exemption for some semiconductor imports was included in the list of products not subject to higher import duties, ‘the vast majority of semiconductors that come into the US are already packaged into products that are not exempt.’
The semiconductor industry has experienced rapid growth since its inception in the mid-20th century.
The first commercially available transistor was introduced in 1947, revolutionizing electronics and paving the way for modern technology.
Today, semiconductors are used in a wide range of applications, from smartphones to computers and cars.
According to the Semiconductor Industry Association (SIA), global semiconductor sales reached $466 billion in 2020, with the industry expected to continue growing at an annual rate of 7-10%.
As demand for smaller, faster, and more efficient electronics increases, research and development in semiconductor technology continues to advance.
The White House published a list of products that it says are unaffected by the tariffs, but it does not include many kinds of chip-related goods. This means that only a small number of American manufacturers will be able to continue sourcing chips without needing to factor in higher import costs. ‘The majority of semiconductors that come into the US are already packaged into servers, smartphones, and other products, which are subject to tariffs.’
Industry experts warn that the tariff bonanza is having a devastating impact on the semiconductor industry. Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, notes that ‘if you are a major chip producer who is making a sizable investment in the US, a hundred billion dollars will buy you a lot less in the next few years than the last few years.’ Stacy Rasgon, a senior analyst covering semiconductors at Bernstein Research, agrees, stating that the tariff on semiconductors amounts to ‘something in the ballpark of a 40 percent blended tariff on that stuff.’
The looming possibility that other countries embedded in the semiconductor supply chain could impose retaliatory tariffs on the US is creating an unpredictable environment for businesses. Mark Wu, a professor at Harvard Law School who specializes in international trade, notes that ‘there’s so many different scenarios’ and that it’s almost futile to speculate without knowing what’s under consideration.
Trump’s trade policies are intended to bring more manufacturing to the US, but they threaten to reverse what had been a bumper period for US chipmaking. The Semiconductor Industry Association recently released figures showing that sales grew 48.4 percent in the Americas between February 2023 and 2024, far above rates in China and Europe. However, the US has a relatively small share of the global chipmaking market due to decades of offshoring.
In 2018, the United States imposed tariffs on imported steel and aluminum from several countries, including Canada, Mexico, and China.
The move was aimed at protecting American industries and reducing the trade deficit.
However, it led to retaliatory measures from affected nations, resulting in a global trade war.
According to the International Monetary Fund (IMF), the US-China trade tensions cost the global economy over $460 billion in 2019.
The Trump administration also withdrew from several international trade agreements, including the Trans-Pacific Partnership and the North American Free Trade Agreement.
US allies, such as Taiwan, are also feeling the heat from Trump’s tariffs. Jason Hsu, a former Taiwan legislator and senior fellow at the Hudson Institute, notes that only about 10 percent of Taiwan’s exports to the US last year were semiconductor products that would be exempt from the new tariffs. The vast majority of Taiwan’s exports are things like data servers and will be taxed an additional 32 percent.
The new tariffs will particularly hurt Southeast Asian countries, which could undermine a long-standing US strategic objective to decouple from supply chains in China. Countries in the region are being hit with some of the highest tariff rates of all, figures that could deter chipmaking companies like Intel and Micron from moving their factories out of China and into these places.
The impact of Trump’s tariffs on the US semiconductor industry is far-reaching and devastating. The industry is already struggling to recover from the COVID-19 pandemic, and the new tariffs will only exacerbate the problem. As one expert notes, ‘I see no soft landing to this’ – the ramifications are going to be very long and painful.
