After a chaotic few weeks of whipsawing in President Trump’s tariff war, a new front has emerged: semiconductors. Semiconductors are a critical part of today’s globally connected and technology-based world. They power everything from our smart phones to computers to critical infrastructure, and more. They are embedded in every fabric of our society in the modern world.
Trump’s Tariff Threats Against Semiconductors
Yesterday, President Trump announced he was imposing a 100% tariff on semiconductors produced outside of the U.S. Trump declined to offer additional details on what exactly the tariffs would apply to.
Taiwan and South Korea are two of the world’s largest exporters and manufacturers of semiconductors. Both countries have recently found themselves in the crossfire of the tariff war on many fronts, including automobiles in South Korea and other technology products and exports in Taiwan.
Earlier this year, in the heat of the tariff war, many electronic devices were spared from the tariffs. This decision to exclude these products included Chinese-made technology products. However, with negotiations slowing between the U.S. and China, Trump is once again putting the pressure on with the semiconductor tariff threat.
Trump has used “national security” as a pretext for the focus on semiconductors, a decision that surely will invite more scrutiny in negotiations with the Chinese government, as well as other foreign governments.
What does Trump want?
Trump is hoping that by threatening tariffs on semiconductors, a similar playbook can be used as he has done throughout this year to bring some manufacturing back to the U.S. As the White House often says, this will “level the playing field” against foreign manufacturers of technology products. Simply, Trump wants foreign chip makers to manufacturer their semiconductors – either parts or the entire product – at home in the U.S.
The problem is that semiconductors are a highly specialized product and manufacturing them in the U.S. will not be as simple as flipping a switch. Former President Joe Biden signed the CHIPS and Science Act into law in 2022, in an effort to bring some semiconductor manufacturing back into the U.S. Trump then attacked that law and pledged to oppose it. Now, some elements from CHIPS, including the provisions specifically around semiconductors, may be utilized in an effort to counter exported semiconductors from abroad.
Challenges for Trump
Even if semiconductors are assembled in the U.S., sourcing all of the raw materials for the semiconductors in the U.S. is nearly impossible as of today. Some rare-Earth minerals will have to come from Asian countries, especially China. China knows that it holds the keys to allowing the U.S. autonomy to produce chips as it sees fit. It has used rare-Earth minerals in its ongoing trade negotiations with the U.S. government.
Another challenge is that technology manufacturers may simply ignore the tariffs and raise prices on American consumers. That would be bad news for all of us.
