The tech tariffs arrive. Why 100% levies had 0% impact

Mint

9 hours ago

The long-awaited—and feared—tech tariffs finally arrived this past week. And in a clear sign of the times, the market rallied despite the cloud of uncertainty that didn't clear.
Standing in the Oval Office with Apple CEO Tim Cook on Wednesday afternoon, President Donald Trump announced what he says will be a new tariff of 'approximately 100% on chips and semiconductors." But 'if you're building in the United States or have committed to build, without question committed to build in the United States, there will be no charge. In other words, we're not going to be charging."
Apple will be one of the recipients of this largess, and the stock rallied 3.2% on Thursday. The Philadelphia Semiconductor index, or SOX, was up 1.5% that day as investors tried to sort through what the president meant.
But much remains uncertain. 'All we can do at this point is highlight some questions, rather than provide answers; we hope we will get more concrete details soon," Bernstein analyst Stacy Rasgon wrote to clients Thursday.
'Chips and semiconductors" is a phrase that has had an elastic definition since April. The SOX began the year down 28%, bottoming out on April 8, the beginning of worldwide tariffs under the International Emergency Economic Powers Act, which is being challenged in court. The IEEPA tariffs have been modified twice by the administration, most recently on Thursday, when tariffs ranging from 10% on imports from the United Kingdom to 41% for Syria went into effect. Goods that are already on the water will see the previous IEEPA tax of 10%.
But in April, the White House exempted a range of tech goods, which the administration has referred to as 'semiconductors" but which also include finished goods like smartphones, PCs, and artificial-intelligence servers. In all, it is $386 billion worth of 2024 imports, 12% of the U.S. total. Chips were only $45 billion of that.
For tech investors, though, IEEPA has been just the opening act, with everyone waiting for the White House to make a decision about how to tariff these tech goods that were being investigated under a national security authority known as Section 232.
The outcome of that investigation was expected next week, but Trump seemed to have let the results out early with the '100%" announcement. The good news for Apple might be bad news for other tech companies, because Apple's stated exclusion from the Section 232 levies suggests the White House isn't just talking about chips; all of Apple's imports into the U.S. are finished products, not semiconductors.
Still, Apple is facing a 20% tax on all its devices imported from China, with no tariffs from products coming from India or Vietnam. Apple paid $800 million in tariffs in its recently reported third quarter, increasing its cost-of-goods-sold for products by 1.9%. It has projected $1.1 billion in customs duties in the fourth quarter.
Going forward, a lot hinges on the definition of 'committed to build in the United States." Apple seems to have met this mark, but who else will earn Trump's favor, and how much will it cost them? Are fixed investments required, or will other kinds of spending also count? Apple is counting its purchases from a U.S. Corning factory, so domestic cost-of-goods-sold seem to be part of the mix.
From an onshoring perspective, all the exemptions could backfire once the math settles out. If Taiwan Semiconductor Manufacturing products are exempted from the semiconductor tariffs because it has 'committed to build" more chipmaking capacity in Arizona, its U.S. customers like Apple, Nvidia, and Advanced Micro Devices may begin to wonder why they're paying up for products from Arizona factories. AMD CEO Lisa Su recently said that the company will pay 5% to 20% more for the Arizona chips versus the same work in Taiwan.
Trump's phrasing, 'committed to build," may also indicate that companies' existing investments in the U.S. may not count toward whatever is necessary to pass muster with the president. As with all of this, we await guidance from the White House.
For companies that don't meet Trump's requests, their experience will vary from country to country because of deals that have been struck with the European Union, South Korea, and perhaps Japan.
The EU, via a Trump executive order, is set to face a 15% tariff on semiconductors. Meanwhile, Commerce Secretary Howard Lutnick tweeted that South Korea would see a semiconductor tariff no worse than any other country, which, as of now, would be the EU's 15%. Japan's top trade negotiator, Ryosei Akazawa, said that Japan has a similar arrangement, but there is no confirmation from the U.S. side on that yet.
The new uncertainty is underlined by the exemptions surrounding the most important tech good in the world: AI servers. For now, those products are exempted from IEEPA tariffs but not the new 100% Section 232 one.
Nvidia, the designer of the most important AI servers, is likely to receive a company exemption from Section 232. The problem for Nvidia is that its servers are made by companies that may not be exempted from Section 232. So, where does that leave the products from the world's most valuable company? I have no idea. And neither does Wall Street.
'We make no changes to our estimates, ratings, or price targets at this time," Rasgon wrote Thursday.
Write to Adam Levine at [e-mail]