US Chip Tariffs: Impact on Electronics & Supply Chain
US Chip Tariffs | Former President Donald Trump has indicated that tariffs of 25% or more could be imposed on all semiconductor chips imported by the US. He said the rate could increase even further in the coming years. However, unlike cars and medicines, which have already been planned to be subject to a 25% tariff, chips are not something that consumers buy directly. But these tiny components are a vital part of almost every electronic device—be it medical equipment, Wi-Fi routers, laptops, smartphones, cars, home appliances or LED light bulbs.
Chip shortage and dependence on Taiwan
The demand for chips increased rapidly during the Covid-19 pandemic as people bought laptops and other devices to work from their homes. To meet this growing need, US companies started sourcing supplies from Taiwanese companies, which had more advanced chip production capacity than the US.
Taiwan not only benefited from the availability of the necessary raw materials, but its government has invested in the semiconductor industry since the 1970s. The result was that Taiwanese companies became extremely technologically advanced. According to the Commerce Department, the US imported a total of $139 billion worth of semiconductors and other electronic components last year, with Taiwan accounting for 27%.
The value of chips and other electronic products shipped from Taiwan to the US increased from $9.4 billion in 2019 to $36.9 billion in 2024. At the same time, the US exported $70 billion worth of chips and electronic components last year. But given America’s dependence on Taiwan, if a 25% tariff is imposed on chips, the prices of electronics could increase drastically.
Challenges of domestic chip production
The CHIPS and Science Act was passed in 2022 to promote chip production in the US, under which an investment of $53 billion will be made over the next five years. Through this, the US is expected to help triple its chip production capacity by 2032.
However, currently most advanced semiconductor chips still come from Taiwan. According to a report, Taiwan alone has 90% of the world’s advanced chip production capacity.
While tariffs will boost domestic production, electronics assembly still takes place largely in Taiwan, South Korea, China and Mexico. This means that chips made in the US will also have to be shipped to these countries, which could again bring them under tariffs.
Time and cost challenge in building new factories
Experts believe that it will take at least two to three years to build new chip factories in the US. Apart from this, the cost of chip production in the US will be higher than in Asian countries.
If semiconductor chip production is to be increased in the US, then imposing tariffs alone cannot be the solution. This will require better technology, government investment and coordination with the global supply chain.
News source: https://edition.cnn.com/
