Policy Alert: Forthcoming Tariffs on Semiconductors and Related Products

Action: The Commerce Department has initiated an investigation under Section 232 of the Trade Expansion Act to determine the effects on national security of imports of semiconductors, along with related products. Under the Act, Commerce must conduct an investigation before the President may impose tariffs. The investigations follow statements by the President that tariffs on semiconductors would be announced soon. The Department is accepting public comments on the investigation through May 7.

Key Insights

• The US produces only about 10% of the global semiconductor supply and lags behind Taiwan and China in the production of many types of chips. Aside from the US and China, the majority of advanced chip manufacturing is concentrated in Taiwan, South Korea, and Japan, with virtually all of the most advanced chips produced in Taiwan and South Korea. This has raised serious concerns about the resilience of the US economy and national security if chip supplies are disrupted in the event of conflict.
• The US has been actively working to reduce its reliance on foreign semiconductor manufacturing – implementing a range of policy measures over the past several years. This includes export controls on sensitive technologies and imposing tariffs in 2018 on a range of related Chinese products. Notably, the 2022 CHIPS and Science Act allocated $53 billion to incentivize semiconductor manufacturing, R&D, and workforce development within the US. TSMC, Samsung, Intel, and Micron have all accepted subsidies under the CHIPS Act to begin or expand US production facilities.
• Following the “Liberation Day” tariffs announced April 2 and the subsequent escalation of tariffs on China, the Administration announced exemptions for electronics products including smartphones. However, Commerce Secretary Howard Lutnick also announced that the exemption was temporary and that semiconductor tariffs would be imposed later. The investigation is the first phase in the imposition of those tariffs.
• Underscoring the Administration’s desire to impose tariffs on semiconductors and related products, US Trade Representative Jamieson Greer said that the current pause was “not really an exemption.  . . . This type of supply chain moved from the tariff regime for the global tariff, the reciprocal tariff, and it moved to the national security tariff regime.”
• While the Administration did not give specific reasons for the action, the switch to using tariff authority under Section 232 both gives time for countries to negotiate with the US, perhaps offering concessions in other areas, and puts the tariffs on a more solid legal footing than using  the “reciprocal” tariff regime that relies on the International Economic Emergency Powers Act, which has already attracted a lawsuit against it.
• Prices of consumer goods including semiconductors are likely to rise once the Administration imposes the new tariffs. Even with the new production announced for the US, it will take time for factories to be built or expanded and production to begin, amplifying the effect on consumers.