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

President Trump's chip-tariff regime could disrupt the global electronics trade and send prices of all kinds of goods higher.

- Asa Fitch & Dan Gallagher

One thing it appears unlikely to do: bring advanced chip-making roaring back in the U.S.

Trump last week threatened a 100% tariff on "chips and semiconductors," but offered an exemption. Companies that commit to "build in the U.S." won't have to pay the duty, according to Trump.

While vague, that appears logical on its face. If the point of the tariffs is to cajole companies into doing more of their work in the U.S., they ought to get a reprieve when they do that.

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.