Introduction

In a move that raised eyebrows across Silicon Valley, President Donald Trump announced a series of tariffs that initially appeared to exempt semiconductors from increased import duties. However, the relief was short-lived. Just days after the announcement, several American tech companies began to realize that the exemptions might end up being more problematic than beneficial.

Impact on Semiconductor Manufacturers

The White House's published list of exempt products left many chip-related goods off the list. Consequently, most American semiconductor manufacturers will face higher import costs as the majority of semiconductors entering the U.S. are packaged within non-exempt products, including graphics processing units (GPUs) and AI training servers. Compounding the issue, the manufacturing equipment necessary for domestic chip production is also subject to tariffs.

Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, highlighted the severe implications for U.S. chip producers. “Investors might find that a hundred billion dollars will stretch far less in the coming years," he cautioned.

According to Stacy Rasgon, a senior semiconductor analyst at Bernstein Research, the limited exemption will not effectively shield the industry from broader adverse effects. Most imported semiconductors arrive as integral components of smartphones, servers, and other consumer products, resulting in what Rasgon describes as a de facto import tax of around 40 percent for these items.

Complex Tariff Structure

One of the complicating factors in this scenario is the intricate U.S. Harmonized Tariff Schedule (HTS) that classifies goods for tariff purposes. The Trump administration's reliance on this complex framework means that many essential semiconductor products do not qualify for exemptions. For instance, while some GPUs fall into an exempt category, many others, including advanced NVIDIA products, will incur the new tariffs.

Risks for AI Firms

The ramifications could be dire for U.S. AI firms. With the imminent implementation of these tariffs, domestic chipmakers and AI companies may face steep increases in costs that could impede their ability to expand data centers and accelerate the development of cutting-edge AI technology. GPU manufacturer NVIDIA, in particular, has seen a significant drop in its stock value—approximately one-third off since the beginning of 2025—reflecting rising concerns about inflated costs and supply chain disruptions.

Potential for Retaliation

Mark Wu, a Harvard Law School professor specializing in international trade, warned of a tumultuous environment for businesses, especially if foreign nations retaliate against the U.S. One can easily speculate that more tariffs could be on the horizon, as hinted by Trump in recent press briefings.

Domestic Manufacturing Goals

As Trump attempts to boost domestic manufacturing through his trade policies, the unintended consequences of these tariffs may derail the progress made in semiconductor production. The Semiconductor Industry Association reported a staggering 48.4% sales growth in the Americas from February 2023 to 2024, outpacing growth in China (5.6%) and Europe (-8.1%). However, despite this growth, the U.S. still commands only 12% of the global semiconductor market, a steep decline from 37% in 1990.

Exemptions and Supply Chain Issues

The absence of critical supply chain components among the HTS exemptions is glaring. For instance, lithography machinery, crucial for chip fabrication, remains burdened by up to 24% in potential import tariffs from countries like Japan, further complicating efforts to reshore semiconductor manufacturing.

Furthermore, essential materials for chip production, including steel, aluminum, and electrical components, are also subject to tariffs—heightening costs not just for chipmakers but also for industries reliant on these supplies, creating a ripple effect across the economy.

Global Supply Chain Consequences

Internationally, U.S. allies participating in the semiconductor supply chain, such as Taiwan, which hosts the major contract manufacturer Taiwan Semiconductor Manufacturing Company (TSMC), will also feel the pinch. Approximately 90% of Taiwan's exports to the U.S. do not qualify for tariff exemptions, likely resulting in higher costs passed on to their American clients.

Taiwanese firms that produce lower-margin products may struggle under the pressure, with some experts predicting that AI-related server prices could skyrocket as a result.

Long-term Implications

The broader context of Trump's tariffs reveals potential peril for U.S. strategies aimed at decoupling from supply chains in China. Southeast Asian nations facing some of the highest tariffs may deter companies from relocating production from China back to these regions.

Jason Hsu, a former Taiwanese legislator and policy expert, stated, “We are likely looking at an explosion of global supply chain disorder that could have long-lasting, painful ramifications."

Conclusion

As the situation develops, the semiconductor industry and U.S. economy will be watching closely—what starts as tariff policies designed to enhance domestic manufacturing could spiral into chaos that disrupts the very fabric of the semiconductor ecosystem.