CHIPS Ahoy! Issue 2

Tariffs and the semiconductor industry

Keeping in theme with his economic agenda, President Trump has indicated that he will levy tariffs on semiconductors produced outside of the USA, but details of the plan are hazy. It is unclear how tariffs would be applied to chips that are produced in the U.S. from imported parts, or those produced overseas from American-made components. How will tariffs be applied to consumer products that contain chips? What about those with multiple chips, each originating in a different country? Will the administration stack one tariff on another?

These open questions are part of the problem with the Trump tariffs. Lori Wallach, a trade policy expert and founder of Citizens Trade Campaign, said, “even when properly targeted and enforced, tariffs only work if they are predictable and sustained. Trump’s tariff roller coaster sends the opposite message.”

Targeted tariffs can be a tool for protecting American jobs. But as with any tool, a person can do a lot of damage if they don’t know how to use it. Experts agree that tariffs could help address some of the effects of deindustrialization, going back to the Clinton era — but “only if they are applied strategically, on a case-by-case basis.”

The Trump tariffs are…not that.

Rather, the tariffs of the second Trump administration are broad, untargeted, and significantly increase the average effective tariff rate in the U.S. Essentially, the approach is likely to bring little of the positives of an effective tariff, trade, and industrial policy, and more of the negative effects of increased costs for manufacturing inputs and consumers.

More than half of all U.S. imports are capital goods and industrial supplies — the building blocks for American manufacturing. Broad and chaotic tariff policy will force companies to either absorb the higher costs, cutting into profits; pass those costs onto consumers by raising prices; or scale back investment and production. This can reduce our international competitiveness and hurts small and mid-sized manufacturers, in particular, because they lack the leverage and capital to weather prolonged increases in input costs.

Moreover, retaliatory tariffs from trade partners further harm American exporters by shrinking overseas markets for U.S.-made goods. This is already impacting the semiconductor industry, as China has imposed export restrictions on gallium—a vital raw material used in chip production. China currently controls between 90 and 98% of the world’s gallium supply, giving it significant leverage in the global semiconductor supply chain. This dynamic undermines the possibility of a domestic manufacturing renaissance.

Without a targeted, industry-focused strategy that includes investments to increase American competitiveness in the sector, tariffs will be counterproductive to the goal of restoring and reshoring manufacturing.

In a manufacturing-heavy state like Ohio, these impacts are potentially magnified. Our state is home to close to 700,000 manufacturing jobs, many of which depend on a steady, affordable supply of semiconductors. From Dayton’s defense technology hubs, to Anna’s car engine manufacturing plant, semiconductor access is critical. If new tariffs drive up input costs, local manufacturers may cut jobs, delay orders, or pass costs down to working families. According to one study, “For every $1 that a semiconductor chip increases in price, products with embedded semiconductors will have to raise their sales price by $3.” Ohio households already face inflationary pressure; adding untargeted tariffs would further strain budgets on everything from cars to consumer electronics.

Blanketing whole nations and industries with tariffs will not put more money in workers’ pockets. Federal legislators can do that by raising the minimum wage, protecting labor unions and making it easier to organize them, and rewarding countries that do the same.

(If you want to really get into the weeds on macroeconomic policies that benefit working people, check out this report from the Economic Policy Institute).

But federal legislators aren’t the only ones responsible for doing right by workers. Corporations like Intel must make — and fulfill — commitments to their workforce. Intel’s community impact report does the first part, promising investments in workforce education and training, committing to diversity, equity and inclusion in the workplace, committing to worker safety and environmental protections, and providing high-quality childcare options for all. It remains to be seen whether the chip manufacturer will live up to these promises.

They are a lot more likely to do so with pressure from Ohio taxpayers, who have already paid out $600 million dollars for Intel’s Ohio One project, and are likely on the hook for hundreds of millions more. With so much public investment on the line, communities must stay engaged and ensure those promises turn into measurable outcomes.

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