The U.S. semiconductor industry is on the brink of a significant shift following the proposed 25% tariff on semiconductors by President Donald Trump.
This move is expected to reshape trade relationships, impact global supply chains, and influence the long-term growth of the semiconductor industry. While the immediate effect on India may be minimal, experts predict strained U.S.-Asia relations and rising costs for tech giants like Apple, NVIDIA, and Tesla.
The India Electronics and Semiconductor Association (IESA) has assessed the impact of the tariff on India’s semiconductor sector.
According to Ashok Chandak, President of IESA, India is unlikely to experience significant immediate consequences. Since India does not export a large volume of semiconductors to the U.S., the tariff will have little direct effect. Additionally, India maintains a zero import duty on semiconductors, reducing the risk of reciprocal tariffs.
Despite the geopolitical shifts, Chandak is confident about India’s position, stating that “in the long run, Indian semiconductor brands will not be at a major disadvantage, as the U.S. tariff is expected to apply uniformly to all exporting nations.” India’s focus on strengthening its domestic semiconductor ecosystem will ensure stability in the sector.
The semiconductor industry is heavily reliant on Taiwan (via TSMC) and South Korea (via Samsung) for chip production. By imposing a 25% tariff, the U.S. risks damaging diplomatic and trade relations with these crucial allies.
The tariff may encourage other nations to strengthen regional trade partnerships to reduce dependence on U.S. markets. According to IESA, this could result in closer collaboration between European and Asian semiconductor industries, potentially reshaping the global supply chain.
A 25% tariff would significantly increase costs for semiconductors imported from Taiwan, South Korea, and China. Chandak noted, “The additional costs will likely be passed on to consumers, making smartphones, laptops, electric vehicles, and industrial electronics more expensive.” Companies such as Apple, NVIDIA, and Tesla will face reduced profit margins or be forced to increase product prices.
Companies may attempt to bypass tariffs by diversifying their semiconductor supply chains. However, as Chandak highlighted, “Establishing new semiconductor manufacturing partnerships can take years, given the complexity and cost of semiconductor fabs.” This transition could cause long-term disruptions in supply chains.
Building semiconductor fabrication plants (fabs) is an expensive and time-intensive process. Typically, a single fab can cost between $10 billion and $25 billion. According to Chandak, companies must carefully assess multiple factors such as tax policies, regulatory frameworks, talent availability, and labor market conditions before making investment decisions.
U.S. companies heavily reliant on Asian semiconductor foundries may experience increased costs and production delays. Although the tariff might encourage domestic semiconductor manufacturing, scaling up production in the U.S. remains a long-term endeavor requiring substantial investment.
While initiatives like the CHIPS and Science Act are in place, IESA warns that establishing high-volume semiconductor fabs in the U.S. will take years. Chandak emphasized, “The tariffs alone will not drive rapid semiconductor manufacturing growth in the US. No company will shut down an existing multi-billion-dollar fab to relocate operations overnight.” Instead, companies will strategically plan investments based on long-term demand forecasts.
The proposed tariffs may conflict with the Information Technology Agreement (ITA), an international treaty signed by the U.S. and other nations. According to Chandak, “major US semiconductor companies could resist the tariffs, given that many rely on Asian foundries and OSAT facilities for production.”
Although the tariffs are designed to promote domestic production and align with U.S. national security objectives, companies may prioritize maintaining zero tariffs on essential components and raw materials needed for chip production. This could lead to further industry resistance.
The proposed 25% tariff on semiconductors may have far-reaching consequences beyond just increasing costs. While India’s semiconductor industry is expected to remain stable in the short term, broader U.S.-Asia trade relations could be severely affected.
Taiwan and South Korea—key players in global semiconductor manufacturing—could see strained diplomatic ties with the U.S. Meanwhile, companies like Apple, NVIDIA, and Tesla face significant cost pressures, which may be passed on to consumers.
Additionally, the shift towards localized production and potential international treaty violations further complicate the situation. While the tariff aims to boost domestic chip manufacturing, industry experts caution that such changes require years of strategic investment and planning.
Ultimately, the global semiconductor landscape is set for a transformation, with stakeholders needing to weigh the benefits of increased domestic production against the risks of trade isolation and higher costs.