Trump's potential semiconductor tariffs spook tech industry

President Trump’s potential tariffs on semiconductors are stoking alarm within the technology sector as companies brace for the ripple effects across the industry and its competitive standing on a global stage.  

The Trump administration launched an investigation this week into the effects on national security of importing semiconductor technology, just one day after the president hinted tariffs on semiconductors could be coming soon in his broader trade war.  

Semiconductors power most of the technology products of today’s ecosystem and industry observers warned the cost could trickle down to consumers should Trump decide to impose an import tax on the chips or the products that host them.  

“There’s going to be an immediate, short-term supply shock if the...prices of chips are increased as a direct result of tariffs,” said Sean Murphy, the executive vice president of policy for Information Technology Industry Council (ITI), a trade association.  

“That’s going to have a ripple or cascading effect across the industry,” he added, “Chips go into everything we take for granted.”  

It is still unclear how broad the semiconductor tariffs could be.

Commerce Secretary Howard Lutnick suggested earlier this week the tariff could apply to products with chips such as smartphones and computers, not just the chips themselves.

“Depending on how those different categories are defined, we’re talking about a very large swath of trade potentially and that could have a really profound effect on the economy,” Murphy said.  

The tech sector was thrown for a loop over the weekend when guidance posted by the Customs and Border Protection stated about 20 products, including smartphones, computers, routers and semiconductor chips, are exempt from reciprocal tariffs. 

Many major tech companies like Apple still manufacture and assemble some of their most popular products in China, which imposed a 125 retaliatory tariff on U.S. goods. 

But two days later, Lutnick stirred confusion when he stated the exemptions are temporary and hinted forthcoming tariffs on semiconductors that will apply to other electronics too. 

The Commerce Department later confirmed on Monday it launched a Section 232 investigation on semiconductor technology, which would set the groundwork for any tariffs Trump chooses to impose on chips.  

The probe is slated to investigate how imports of semiconductor technology impact national security and seeks public comment within three weeks.  

It comes amid the larger competition dynamics between the U.S. and other countries, especially China, to stay ahead in the race for artificial intelligence (AI), an emerging technology powered by chips.  

The Biden administration rolled out a series of export controls on semiconductors in recent years to prevent China from using U.S.-made chips in their own AI or chip development, and the Trump administration has continued these efforts.

The Commerce Department confirmed on Wednesday it introduced new export licensing requirements for AI chipmaker Nvidia, which is expected to take a $5.5 billion hit as a result, along with rival chipmaker Advanced Micro Devices.  

“When you look at increased costs, supply chain instability, the market uncertainties at present taken together, this does threaten to weaken Silicon Valley’s competitive edge globally,” said Ahmad Thomas, the CEO of the Silicon Valley Leadership Group (SLVG), a business association representing various tech companies.  

“We’re looking at increased costs for essential infrastructure connected to our next generation of AI as an example, or cloud computing and the additional cost that we see around data center components,” he added.  

Trump has justified the trade war as a way to get companies to move their manufacturing to America, though those in the tech space have repeatedly warned such a transition takes years and a lot of money. 

Nvidia announced on Monday it would invest $500 billion into building AI chips and supercomputers entirely in the U.S. over the next four years.  

Trump touted this as a show his tariffs are working, though experts noted most companies are not in a position like Nvidia to make such moves.  

In the wake of the administration’s fluctuating messaging on tariffs, chip manufacturers are finding themselves in a tight spot ahead of key earnings reports.

“If you're a company that's been a highflyer like Nvidia or TSMC (Taiwan Semiconductor Manufactuing Company), and you're about to report this week or in the following weeks, but you cannot give guidance over the coming quarter, that builds a lot of uncertainty, and the sentiment will continue to be a negative one,” Mario Morales, the group vice president of enabling technologies and semiconductors at IDC, told The Hill. 

Should the tariffs take effect on semiconductors, some suggested companies are at least in a better spot than they were a decade ago since export controls and past tariffs forced them to rethink and adjust supply chains away from China. 

“U.S. makers started migrating some of their production from China to Singapore or back to Taiwan or Japan or other regions,” Morales said. “Even though it cost them something, there was a bit more certainty in guaranteeing the supply to their key customers."

Still, other experts warned the U.S. is not likely to have the resources at home to meet the chip production demand. 

“There is not [a] domestic supply that is going to be available to make up any sort of gaps or shortages or lack of domestic sources for these products,” Murphy said.  

And even if companies are able to move manufacturing to the U.S. or other nations with lower import taxes, the uncertainties and economic impact could make it more difficult for U.S.-made chips to be exported internationally, Murphy added.  

“The industry wants to have robust and diverse supply chains, they want to be in the U.S. We want manufacturing and employment in the U.S., but we also have to then have customers to sell those new chips to,” he said. “They have to find foreign markets and foreign customers to sell those products to.”  

“The reality is all of this uncertainty makes customers think, ‘Do I really want the headache of dealing with a company that is manufacturing in the United States,” he added.