Trump’s tariff proposal risks harming US chip industry, experts say

US President Donald Trump’s recent proposal to impose a 100 per cent tariff on chips and semiconductors may not achieve its intended goal of boosting advanced chip manufacturing in the United States, industry analysts warn. While the tariff would be waived for companies committing to build production facilities within the US, the policy fails to address deeper structural issues that are hindering the country’s ability to become a leader in cutting-edge chip production.

Tariffs likely to have minimal impact

The US has already seen major investments from global semiconductor giants, including Taiwan Semiconductor Manufacturing (TSMC) and South Korea’s Samsung Electronics, who are building multi-billion-dollar chip factories in Arizona and Texas, respectively. These projects, driven in part by previous US subsidies, aim to strengthen the domestic supply chain and reduce reliance on foreign-made chips. However, Trump’s tariffs may not spur additional investment, as many of these companies have already committed to US production in exchange for financial incentives.

TSMC’s $165 billion investment in US manufacturing, for example, may help it avoid tariffs, but these efforts are unlikely to be expanded further due to the higher costs of production in the US. The company has already stated that the Arizona fabs will operate with older chip-making technology, underscoring the difficulty in competing with the more advanced processes employed at TSMC’s Taiwanese facilities. Experts note that, for some companies, the tariffs could result in a situation where the minimum amount of US investment is made to comply with the rules, while the majority of the chips are still produced abroad.

Higher prices for consumers and electronics firms

While the tariffs might encourage some companies to establish US-based operations, the broader implications could harm US consumers and companies relying on imported components. Electronics giants like Apple have already secured tariff exemptions through hefty investment pledges, but smaller firms may struggle with the added costs of tariffs on imported chips. Analysts warn that these costs could trickle down to consumers in the form of higher prices for electronics, such as smartphones, laptops, and even automobiles.

Apple, for instance, has been a significant player in US chip manufacturing, relying on TSMC’s Arizona facilities for chip production. However, much of Apple’s investment, such as expanding data centres and server production, has little impact on advanced semiconductor manufacturing. Furthermore, much of Apple’s commitment to US-based production was already in progress before the tariff threat, suggesting that the tariffs themselves may not be the driving force behind its manufacturing decisions.

Geopolitical factors and strategic supply chain investments

Ultimately, it’s not the tariffs but broader geopolitical and economic factors that are driving chip manufacturers to establish operations in the US. The growing risks of political instability, particularly tensions with China and the possibility of conflicts in West Asia, have encouraged semiconductor companies to bring their supply chains closer to home. Additionally, subsidies like the 2022 Chips Act and US tax incentives for equipment purchases continue to be more effective at enticing foreign manufacturers to set up shop in the US than the tariff proposal itself.

Industry experts argue that while the US may continue to see growth in domestic semiconductor production, this will be driven by economic incentives and geopolitical strategy, not tariffs. If the aim is to secure more advanced chip manufacturing in the US, the tariff regime proposed by Trump may fall short of its intended goals, creating more risks than rewards for the broader economy.

(With inputs from agencies)