Trump’s Tariff Stance on Semiconductor Industry

President Trump has emphasized the importance of tariffs over unchecked government spending for revitalizing American industry. He has criticized initiatives like the Chips Act, but it’s worth noting that the forthcoming semiconductor tariffs from the Department of Commerce hinge on those investments. Without these tariffs, multinational companies continue to import chips from Asia, leaving taxpayer-funded fabs potentially underutilized.

In April, the Department of Commerce launched an investigation under Section 232 regarding semiconductor imports. This national security statute mandates the imposition of tariffs if imports pose a threat to U.S. security. Under Trump, economic security has been closely tied to national security, especially since semiconductors are crucial technology for the 21st century. He’s even raised tariffs on chips by as much as 100%, with commercial surveys anticipated to come out by the end of December.

The role of tariffs extends beyond mere national security; they also generate demand. Without a strong demand, newly established U.S. fabs run the risk of becoming obsolete. Warning signs are already apparent, like Samsung postponing its $44 billion Texas manufacturing plant due to “no customer.” Companies like Intel, Micron, and Texas Instruments may be based in the U.S., yet many, including Apple and Dell, still often opt for chips from Taiwan and South Korea. Tariffs alter the economic landscape: essentially, U.S. fabs must be the preferred source or those companies face costs. This is the crux of a chip-for-chip policy.

That said, some exemptions are popping up. Reports indicate that Apple has received a temporary exemption for finished products like iPhones and laptops. However, this creates a problematic situation where Apple can import an Asian-assembled MacBook without taxes while still incurring tariffs on laptops manufactured in Texas.

If exemptions are to be a part of the equation, strict regulations are necessary. Trade agreements should ideally only grant exemptions to firms that are actively investing in U.S. fabs. These exemptions should be linked to ongoing projects and not rely on vague promises of future investments.

Interestingly, most semiconductor imports aren’t raw chips but are embedded in finished products. In 2024, the U.S. imported $140 billion worth of computers versus only $40 billion in chips. While tariffs apply to raw materials, completed products like laptops can come in without additional costs. This loophole encourages offshoring instead of fostering local manufacturing. It’s critical for customs regulations to cover both raw chips and their value in finished devices.

Relying solely on the chip approach won’t suffice.

The lack of tariffs poses a significant risk: a subsidy program for fabs might result in manufactured chips being shipped back to Asia for final assembly. A comprehensive strategy needs three components—providing incentives for fab construction, applying Section 232 tariffs to create demand, and also instituting duties on downstream products to prevent finished goods from crowding U.S. markets. Why pay tariffs on a motherboard when bringing in a fully assembled computer could be duty-free?

This three-pronged approach is how China has gained a foothold in the global market. By merging incentives with protective measures, they’ve built a complete domestic supply chain. Unsurprisingly, this has made the U.S. heavily reliant on China for manufactured goods.

The Commerce Department should be mindful of sectors, like medical devices, that depend on chips yet are manufactured domestically. While Section 232 allows certain exemptions, these must remain tightly focused.

Ultimately, chips are integral to a broad array of items, from smartphones to MRI machines to military aircraft. Protecting the semiconductor supply chain is crucial for preserving national and economic security in the U.S.

Tariffs aren’t just blunt instruments; they strategically disrupt the Asian-centric manufacturing model. Coupled with the Chips Act’s incentives, the message to global tech firms is clear: invest in the U.S. if you want to access this market. This is how Washington narrows the gap on Asian dominance. If not, companies will risk being left behind while America develops its own capabilities.

Commercial regulations must ensure that tariffs remain robust, easy to navigate, and devoid of loopholes. When combined with the incentives from the Chips Act, tariff strategies become essential for maintaining leadership in key industries going forward.