Trump targets chip imports with new 25% tariff

US president Donald Trump has announced a 25% tariff on chip imports and has warned that it will increase in a year unless chip companies start manufacturing them in the US. Trump had earlier threatened to impose a 100% tariff on Taiwan-made chips. 

Taiwan, which is home to the world’s biggest chip manufacturer TSMC, accounts for over 60% of global chip production. The US’s share of global chip production is only 8%, according to the Centre for Strategic and International Studies (CSIS). The new tariff, expected as soon as April, could push up the cost of electronics in the US. 

“It will be 25% and higher, and it will go very substantially higher over the course of a year, but we want to give them time to come in because, as you know, when they come into the US and they have their plant or factory here, there is no tariff. So we want to give them a little bit of a chance,” said Trump during a press briefing Tuesday.

The Trump administration is taking a tough stand on imports and is using tariffs to force electronics and chip companies to set up manufacturing plants in the US. Early this month, Trump imposed a 10% tariff on all imports from China, including consumer electronics, which had been exempted from tariffs until now. 

The US imported goods worth $401.8 billion in the first 11 months of 2024 from China, according to the US Census Bureau. Consumer electronics account for 25% of goods imported from China, according to the US International Trade Commission. Earlier, US tariffs on Chinese imports included those on electric vehicles (100%) and steel and aluminum imports (25%). 

Several US companies including Apple, while still being heavily reliant on China for production, have expanded their manufacturing footprint in the US in recent years. Apple is making MacBook Pro laptops in Texas, while Dell manufactures servers and other enterprise hardware in the US. 

Among chip companies, Intel is planning to invest $100 billion to set up manufacturing plants across four US states of Ohio, Arizona, New Mexico, and Oregon.  Last November, Intel secured up to $7.86 billion in funding from the US government under the CHIPS and Science Act, to fund the project. 

Under the CHIPS Act, passed in 2022, the US government has allocated $52 billion to boost domestic chip manufacturing and research.

The ongoing trade war between the US and China also restricts US companies from selling their products to companies that have close ties with the Chinese government and may pose a national security risk. These restrictions block US companies such as Google from licensing its proprietary Android operating system and Google mobile services to certain Chinese brands such as Huawei. 

Similarly, US chipmaker Nvidia is prohibited from sharing high-performance GPUs that could be potentially used by Chinese companies for military purposes or build AI products that can compete with the US. 

High tariffs on China-made goods have been used by several countries including India to reduce dependence on Chinese imports and boost local manufacturing. For instance, India charges a 15% import duty on completely built units (CBUs) imported from China, while keeping the duties on components such as printed circuit board assembly (PCBA), camera modules, battery covers, and GSM antenna are much lower. 

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