President Trump’s sweeping global tariffs have rocked the stock market since being announced on Tuesday, with just about every major tech company down double-digits. Semiconductors were largely spared from an immediate impact, however, as chips from Taiwan and other nations were exempted. Most electronics sold in the United States are powered by chips made in Asia, meaning tariffs would have a significant impact on prices. But Trump told a White House press pool on Thursday that tariffs on semiconductors will be imposed “very soon.”
Already, tariffs on foreign-made goods have led Nintendo to announce a delay in U.S. pre-orders for the Switch 2 while it assesses the potential impact of tariffs. And Klarna, the buy-now-pay-later startup made a meme for letting customers pay for food deliveries in installments, delayed its planned IPO on Friday. Global economic uncertainty probably hurts the business case for financing Chipotle burritos through zero-interest, unsecured loans.
President Trump had already threatened to impose large tariffs on semiconductors made abroad as the United States aims to build more crucial technology domestically. China’s closure of Shanghai in 2022 over a COVID-19 outbreak highlighted the risk of relying on long, international supply chains for essential manufacturing. TSMC, one of the major chipmakers that makes products for the likes of Nvidia and Apple, has committed more than $100 billion to open production and R&D facilities in the United States, but scaling takes a long time. Dan Ives, an analyst at Wedbush Securities, estimated it would take Apple three years and $20 billion to move ten percent of manufacturing to the U.S.
If President Trump is trying to make the United States more competitive in manufacturing, it makes some sense to include chips in tariffs. Domestic manufacturers like Intel rely on foreign-made hardware to build their chips locally, and with tariffs in place, that hardware will cost more, subsequently meaning the chips themselves will not be competitive to those built abroad.
Tom’s Hardware detailed how prices of chips could increase under new tariffs:
For example, if there is a 25% tariff on an Nvidia AI GPU that the company sells for $50,000 with a 75% gross margin, then Nvidia will have to declare a value of $12,500 and pay an import duty of $3,125. Such a tariff will either hurt Nvidia’s margins or make its GPUs more expensive for buyers in America. For Elon Musk’s next-generation data centers, which are set to contain a million GPUs, this means $3.125 billion of additional costs.
President Trump has said that the tariffs imposed on Wednesday are meant to create a level playing field for manufacturing. And while it makes sense to move some manufacturing back to the United States, doing so takes many years. Products made domestically will still surely be more expensive than alternatives made abroad. Labor in the United States is expensive, and worker protections and regulations add to that burden. America has long been a service economy; people in the U.S. do not want to do hard labor.
Certain sectors like chipmaking may be viable to reshore to the United States as they are higher margin businesses than commodity goods like toasters or shoes. But it is unclear whether physical products made in the United States would ever be competitive globally. The largest economy in the world is adept at services—designing products, writing code—and leaving the elbow work to other countries. Even if manufacturing of durable goods does come back to America, there is a widespread belief that much of it will be automated, such as with Tesla’s Optimus robot. Amazon has continued to invest heavily in automating its factories.
Under tariffs one could envision Americans paying more for lower-quality goods, especially making the new tax regressive to low-income Americans. And for businesses, they could make U.S. companies less competitive because their costs of doing business will be higher. And this is at a time when China is racing ahead in fields like AI and automotive.
Many economists believe that a budget deficit, which the U.S. currently faces, means the country spends more importing goods than it does exporting. But there are other ways to balance the books that would not harm Americans in the process, like negotiating down drug prices.
Federal Reserve chair Jay Powell said on Friday that Trump’s tariffs will likely stoke “higher inflation and slower growth,” and warned that unemployment could rise after several months of strength. But he added that the Federal Reserve is not going to immediately lower interest rates, which could dampen the impact. Which is to say, Powell does not plan on bailing out Trump despite widespread criticism of the tariffs amongst the business community.
