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Proposed U.S. tariffs on imported semiconductors and equipment are generating considerable apprehension among industry leaders and policy experts. They contend that these measures, intended to bolster domestic manufacturing, risk triggering substantial economic damage and undermining America’s leadership in the technology sector.

These stakeholders worry that broad duties could negatively affect U.S. leadership in digital and non-digital sectors, slow economic growth, contribute to inflation, and weaken manufacturing competitiveness.

The uproar comes as the U.S. Department of Commerce is investigating the national security implications of semiconductor and semiconductor manufacturing equipment (SME) imports under Section 232.

While some temporary exemptions from broader “reciprocal tariffs” have been granted, the ongoing investigation and tariff proposals, potentially reaching 25% or higher, create uncertainty for an industry requiring substantial long-term investment.

Last week, the Information Technology and Innovation Foundation (ITIF), a think tank focused on science and technology policy, published a detailed study of potential economic damage to the U.S. economy if the proposed tariffs are implemented.

In an email exchange with EETimes, Stephen Ezell, VP for global innovation policy at ITIF, expressed strong reservations. He argued that “semiconductor tariffs would raise the costs of a whole host of products from automobiles and appliances to medical devices for American consumers.” He also noted that by increasing input costs, such tariffs would make U.S. manufacturing across many sectors less competitive globally.

Economic impact and consumer prices

ITIF’s economic modeling suggests potential negative consequences for the U.S. economy. A general 25% tariff on U.S. semiconductor imports will cause a 0.18% decrease in economic growth in the first year, potentially increasing to a 0.76% reduction by the tenth year if sustained. Even a 10% tariff could result in reduced GDP growth.

These macroeconomic effects lead to direct costs for American households. With a sustained 25% tariff, the average American could experience a $122 decrease in living standard growth in the first year, with a cumulative loss estimated at $4,208 over ten years.

Furthermore, ITIF analysis suggests a potential fiscal challenge: the U.S. government might lose more tax revenues due to decreased economic activity than it collects from tariffs, projecting a net loss of $165 billion in the tenth year under a sustained 25% tariff. 

ITIF characterizes semiconductor tariffs as a “tax on capital formation” and a “tax on a non-readily substitutable good,” explaining that they can increase prices on Information and Communication Technology (ICT) goods containing chips, leading to lower consumption and a decline in the U.S. ICT leadership, which in turn can reduce productivity and economic growth.

Furthermore, the Semiconductor Industry Association (SIA) emphasizes a considerable multiplier effect, estimating that a $1 increase in the price of a semiconductor chip due to tariffs could trigger a $3 increase in the sales price of products incorporating those chips to maintain profit margins.

“Overly broad import barriers—as opposed to targeted measures supporting domestic production, sectoral trade negotiations, or targeted restrictions—risk disrupting the semiconductor supply chain in the United States and in partner and allied countries,” said SIA in a briefing, “jeopardizing the availability of chips for critical downstream industries in the United States, imperiling U.S. technological leadership, and benefiting foreign competitors in an industry that operates on low margins with revenue driven back into the industry through R&D to stay ahead.”

Effects on downstream industries

The implications of tariffs could extend to numerous sectors that rely on semiconductors. The automotive industry is particularly vulnerable, as modern vehicles contain thousands of chips. ITIF analysis indicates that a 22% increase in semiconductor costs could add up to $800 to a car’s manufacturing cost. 

Electric vehicles (EVs), which require even more chips, would likely face greater cost pressures. Experts anticipate that tariffs could lead to a range of increases in vehicle prices, potentially resulting in job losses within the U.S. auto sector.

“Tariffs raise input costs to manufacturers within the country applying these levies, products may become less competitive, overall market prices may go up, and demand for end products could be affected,” says McKinsey. “Similarly, if tariffs were to ultimately result in shortages of necessary materials, supply chain constraints could limit overall manufacturing output.”

Data centers, critical infrastructure for the digital economy, and the foundation for Artificial Intelligence (AI) are also highly exposed, with semiconductors potentially representing up to 60% of their cost. 

“Higher expenses for hyperscalers such as Google and AWS would raise costs for AI competitors such as OpenAI and Microsoft, slowing model training and discouraging further investment in AI infrastructure,” says the ITIF Study. Tariffs on these chips could significantly increase the cost of building and operating data centers.

ITIF cautions this could limit expansion and raise costs for all industries dependent on them, slowing down AI research and development in the U.S. Consumer technology could also experience higher retail prices for devices that include chips.

Fierce industry opposition

Major industry players, including TSMC, Intel, Qualcomm, Micron Technology, and Texas Instruments, have voiced unified opposition to potential tariffs, warning they could seriously harm the sector’s competitiveness and endanger significant domestic investments.

TSMC has explicitly cautioned that new import restrictions could negatively impact its $165 billion investment in Arizona, a key project for U.S. onshoring efforts.

Intel stresses the importance of protecting American manufacturing and has also called for exemptions, particularly on imported SME and components necessary for its supply chain.

Qualcomm, a leading fabless company that depends on foreign manufacturing, warns that rapid tariffs without support for transition could hinder investments in U.S. capacity and risk weakening American technological leadership, especially in 5G and future 6G. 

Micron, the only U.S.-based memory chip manufacturer at scale, is concerned that tariffs on imported SME, construction materials, and specialty chemicals would severely damage the domestic manufacturing ecosystem and increase the cost of building new fabrication plants, potentially making them commercially unviable. 

These companies and Texas Instruments collectively warn that poorly conceived tariffs could undermine the strength and competitiveness of the U.S. semiconductor sector. They emphasize the complexity of global supply chains and the need to balance the promotion of domestic manufacturing with participation in international markets.

Policy recommendations from industry associations

The SIA argues that broad tariffs would worsen the cost disadvantage of building fabs in the U.S., decrease global demand for U.S.-branded chips, and negatively affect the U.S. defense industrial base. 

They recommend a multi-country sectoral agreement, expanded domestic tax incentives, streamlined regulations, and increased R&D and workforce development funding.

Contingency measures include narrowly targeted tariffs by country and product, exempting U.S. content, phasing in tariffs, and avoiding “stacked” tariffs. 

The U.S. Chamber of Commerce, Technology & Services Industry Association (TSIA), Business Roundtable, and others also urged caution, advocating for targeted and carefully considered approaches avoiding impacting allies or critical sectors.

The consensus among these stakeholders is that while boosting U.S. manufacturing is an important objective, broad tariffs could be counterproductive. Achieving national security and economic competitiveness goals requires a strategic approach that incentivizes domestic production, as initiated by the CHIPS Act while maintaining strong global partnerships and carefully avoiding measures that tax the necessary inputs for building domestic capacity. 

The global semiconductor value chain’s intricate nature and reliance on imported SMEs and materials make rapid, comprehensive onshoring through protectionism impractical and potentially damaging.