Trump’s Tariffs Won’t Solve U.S. Chip-Making Dilemma

The proposed semiconductor tariffs—and exemptions—don’t line up with their supposed purpose

By Asa Fitch and Dan Gallagher of The WSJ. Excerpts:

"One issue is that all of the world’s big chip companies are already investing in U.S. production, encouraged in part by subsidies doled out by the prior administration. Meanwhile, other big technology companies are likely to invest in areas other than advanced chip production to get their own exemptions.

Taiwan Semiconductor Manufacturing is building chip factories north of Phoenix that are part of $165 billion of U.S. investments. South Korea’s Samsung Electronics  is building a project in Texas worth $40 billion. The list goes on.

It seems likely those chip manufacturers will win exemptions on tariffs thanks to the size of these investments. But if so, the latest tariffs won’t incentivize them to keep adding to their U.S. operations. If anything, the incentive will be to make just enough U.S. investment to appease politicians, then import whatever else is needed, especially considering the substantially higher cost of manufacturing in the U.S."

"Counterintuitively, chip tariffs might end up having a more dramatic effect on electronics companies that don’t make chips, because they have so much to lose from tariffs on vital imported components."

"if the aim of chip tariffs was to bring more advanced chip manufacturing to the U.S., these pledges are hardly silver bullets."

"Apple is also spending big on server manufacturing, expanding its data centers and adding to its campus in Austin, Texas—all activities that have less bearing on the domestic chip industry."

"much of what Apple is doing was already in progress before the tariff threat."

"U.S.-based manufacturing will still come at a premium"

"“The higher cost of tariffs and U.S. production will eventually be shared across U.S. consumers and different parts of the supply chain,” Bernstein Research analysts wrote in a report Thursday."