With the campaign over and the votes returned, the US moves forward with a second term for Donald Trump. But what does this mean for the semiconductor industry? Will forthcoming policy boost reshoring and increase chip availability or simply mark the beginning of further supply chain struggles? Listening to Trump on the campaign trail, one thing is clear – Trump has a taste for hyperbole. That makes it difficult to know which of his campaign promises will materialize in the coming years and for those that do, how many will in fact be enacted on “day one” of his presidency.
Judging by his first term, however, we can make another assertion – Trump likes tariffs. That means his campaign promises to increase tariffs are likely to be realized. The tariffs he imposed in 2018 during his first term are still in place and he now plans to implement sizable tariffs on imported goods, including 60% on imports from China, 25% on those from Canada and Mexico, and a blanket 10 or 20% on all other imports.
How will tariffs impact component supply?
Import tariffs would likely be tough on US companies who import most chips from overseas, and it would certainly push up the price of consumer technology such as laptops, smartphones and games consoles, but (and let’s try to follow Trump’s logic here) it could also increase tax revenue by $300 billion, with $200 billion of that coming from China.
Staying with the positives, tariffs on chips made outside the US could provide a welcome boost for US chipmakers who face fierce competition from overseas, notably Taiwan and South Korea. In a 2023 US International Trade Commission working paper, for example, it was revealed that 44% of all imported logic chips, central processing units and graphics processing units come from Taiwan.
Quite sensibly it seems, Trump wants to use tariffs to encourage US businesses to source chips domestically and persuade giants like Taiwan-based TSMC to build more factories in the US. According to Chief Economist at the Coalition for a Prosperous America, Jeff Ferry, policy such as this could “create roughly 100,000 jobs at US chip manufacturers and their suppliers.”
Long-term of course, this might prove to be true, but in the short term, Trump’s tariffs could have some unpleasant side effects. Component prices will increase across the board and many of the complex supply chains currently in place will be disrupted. Combine this with tariffs on key materials such as germanium and gallium, which already face restricted supply from China to the US, and it could even become increasingly unprofitable to manufacture components in the US.
Not to mention the fact that Trump’s tariff gamble might not pay off at all. Companies might not want to invest their cash in expensive semiconductor fab facilities in the US, choosing instead to pass the cost of the tariffs on to customers. This would cut profit margins for design houses such as Nvidia and AMD, and could have a knock-on effect on the supply chain as a whole.
Will Trump cancel the Chips Act?
But hang on a moment, haven’t we just spent the last two years talking about how the Chips Act is already driving domestic semiconductor production? Thanks to the Biden administration’s investment incentives, TSMC is putting $65 billion into three Arizona fabs, while Samsung is investing $17 billion in Texas. In fact, according to the US Semiconductor Industry Association, the country is on course to triple its semiconductor manufacturing capacity by 2032.
If the Act runs as planned it should tangibly reduce US reliance on overseas chip supplies, providing a reliable source of components, safe from the geopolitics of Southeast Asia. For a country with ambition in emerging technologies such as AI, a shortage-free supply of advanced chips is a must and the Chips Act promises to deliver.
So why is Trump not a fan? In his campaign trail interviews, Trump notably referred to the Chips Act as ‘’so bad’’ because it subsidizes “rich companies”. And of course, he’s not wrong. Some of the most successful chip manufacturers from across Asia have profited from the Act. Trump’s reasoning: ‘Why pay to encourage companies to manufacture in the US, when you can achieve the same goal through tariffs without spending a cent (and increase tax revenue to boot)?’
So, will Trump repeal the Act and cancel the funding already allocated? Truthfully, it seems unlikely that Trump will cancel the Chips Act in its entirety – after all it chimes with his ‘America First’ rhetoric thanks to its emphasis on protecting US industry and prioritizing self-sufficiency.
More likely by far is that Trump will seek to modify the rollout, delay funding, or limit the allocation of resources to its implementation. Some companies are not prepared to wait and see and several chipmakers have now signed binding contracts to ensure their Chips funding is safe, but for the most part, those involved are taking a cautiously optimistic approach.
After all – it’s unwise to take Trump at his word when those words were issued during a controversial and combative presidency campaign.
