President Donald Trump has suggested plans to impose tariffs of up to 100% on semiconductors imported from Taiwan, aiming to boost US manufacturing but risking higher costs and supply chain disruptions for tech firms and enterprises.
“In the very near future, we’re going to be placing tariffs on foreign production of computer chips, semiconductors, and pharmaceuticals to return production of these essential goods to the United States of America,” Trump said during a recent address.
Taiwan, home to the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), responded by emphasizing the mutually beneficial relationship between its semiconductor industry and the US.
The island’s economy ministry highlighted the complementarity of the US-designed, Taiwan-foundry model, describing it as a “win-win” for both sides, according to Reuters.
Import tariffs are typically paid by importers, meaning steep duties can curb sales, push suppliers to shift production to avoid levies, or prompt businesses to source domestically. In some cases, the added costs are passed on to buyers, driving up prices.
Costs to rise before supply chains shift
Industry analysts warn that the proposed tariffs could drive up costs for electronics and disrupt supply chains, with companies such as Nvidia, Apple, and AMD likely to bear the brunt of higher production expenses and potential shipment delays.
“Short-term impact of tariffs on AI and cloud computing infrastructure will affect hardware procurement for hyperscalers and neocloud providers across compute, memory, storage, and networking components,” said Danish Faruqui, CEO of Fab Economics. “All such procurement, primarily from Taiwan and South Korea to the US, relies on leading-edge semiconductor technologies, including sub-5nm logic chips, DRAM/HBM memory products, NAND, HAMR/NMR SSDs, and PAM4 DSP/coherent DSP/switches/datacenter interconnect components.”
While the tariffs are intended to encourage domestic manufacturing, industry experts say they are unlikely to shift procurement away from Taiwan and South Korea in the short term.
The US currently lacks an alternative high-volume manufacturing base for advanced semiconductor production, meaning tariffs would mostly result in higher prices rather than immediate supply chain adjustments.
“In the longer term, if there is sustained tariffs imposition as high as 100%, despite any potential countermeasures from Asia or other non-linear geopolitics, then we can foresee planned reshoring of leading-edge production bases to US soil by both Asian (Taiwan/S. Korea) and US players,” said Faruqui, adding that the longer term implies six to seven years.
Tariffs represent a long-term policy gamble, contrasting with the Biden administration’s existing approach of subsidizing semiconductor projects.
“Tariffs are a long-term strategy the new administration is betting on, in stark contrast to greenfield fab and OSAT project-based subsidies,” Faruqui said. “Our R&A across multiple project types indicates that such subsidies take half the time required for tariffs to achieve statistically equivalent or better results – but only after tens of billions in funding.”
With US chipmakers already receiving billions in CHIPS Act funding to expand domestic production, the effectiveness of tariffs in reshaping the semiconductor supply chain remains uncertain.
While they may drive up prices in the near term, the long-term outcome will depend on how chipmakers, particularly in Taiwan and South Korea, respond to shifting trade policies.
Attempts to boost chip reshoring ambitions
The tariff plan aims to shift production to the US, but its success remains uncertain, because companies like TSMC have several concerns to consider.
“I am not sure how many of those companies will relent and agree to do that – it’s not just the cost of building in the US, but also labor availability, regulations, etc., that make it difficult,” said Gaurav Gupta, vice president analyst at Gartner. “I think tariffs might be a negotiation tactic, and it’s hard to predict where things will ultimately land.”
Some analysts believe companies like TSMC may eventually concede, particularly as it is already expanding its US footprint. The CHIPS Act has already laid the groundwork.
“This is all about timing,” said Patrick Moorhead, chief analyst at Moor Insights and Strategy. “I think that tariffs will be imposed for a short period as TSMC will likely balk, but in the end, relent.”
Without some kind of intervention, the US share of global semiconductor manufacturing, which stands at roughly 11-12% today, could decline. However, even with new fabs, reshoring is a long-term, tedious effort.
“I don’t think we will see a near-term impact, as it takes years to build fabs, but by the end of the decade, the US share could rise by a few percentage points,” Gupta said. “It’s hard to give an exact number, but if I were to estimate, I’d say 14-15%. That isn’t a lot, but for the US to gain share, someone else must lose it, and while the US is making efforts, we see similar developments across Asia.”
Yet, if Washington imposes smaller tariffs on imports from countries such as India, Japan, or Malaysia, Taiwanese chipmakers may shift production there rather than to the US, according to Stephen Ezell, vice president at the Information Technology and Innovation Foundation (ITIF).
“Additionally, if the tariffs applied to Chinese chip exports were lower than for Taiwanese exports, Trump would be helping Chinese semiconductor manufacturers, whose exports to the US market would then be less expensive,” Ezell said in a recent note. “So, for this policy to have any real effect, Trump effectively must raise tariffs on all semiconductors, and that would likely lead to global tit-for-tat.”
Enterprise IT faces tough choices
If semiconductor tariffs drive up costs, enterprises will be forced to reassess spending priorities, potentially delaying or cutting investments in critical IT infrastructure.
Rising chip prices could squeeze budgets for AI, cloud computing, and data center expansions, forcing businesses to make difficult trade-offs.
“On the corporate side, hyperscalers and enterprise players need to brace for impact over the next 2-3 years if high tariffs continue along with the erosion of operating margin,” Faruqui said. “In addition, the boards and CEOs have to boldly make heavy CAPEX investment on US Soil via US and Asian partners as soon as possible to realize HVM on US soil and alleviate operating margin erosion due to tariffs on imports of foreign semiconductor components.”
Fortunately for enterprises reliant on cutting-edge chips, production in the US is slowly taking shape. TSMC’s first Arizona fab is nearing production, with its second and third facilities under development.
“Depending on how successful these are, I expect TSMC to continue to increase capacity in the US, which will give enterprises options to diversify their procurement and reduce some reliance on Asia,” Gupta noted. “However, for this to be totally successful, we would also need some packaging/assembly to move to the US – that is happening slowly, but anything around chip fabrication/packaging takes time.”
While US semiconductor manufacturing is expanding, a 100% tariff will force enterprises to face several years of higher costs and supply chain uncertainty before domestic alternatives can ease dependence on Asian chipmakers.
Analysts like Faruqui suggest that enterprises will need a nuanced approach, with key strategies including insulating end products from tariffs, extending supply chains toward the US, optimizing cost structures to protect margins, and shifting portfolios toward higher-value offerings.
Source:: Network World