Exempt or Not, the Chip Industry Won't Escape Tariffs

Wall Street Journal

03-04-2025

It sounded like a welcome reprieve. But Donald Trump's exemption of semiconductors from his reciprocal tariffs offers little comfort for an industry whose products live inside an ever-expanding set of consumer goods.
The exemption means the U.S.'s direct chip imports, which totaled around $82 billion last year, will only be subject to Trump's baseline 10% tariff.
Yet most chip imports are indirect. Chips typically are made overseas, packaged up there and inserted into electronics shipped across the globe—including to the U.S., where they will be subject to tariffs as high as 49%. Even many U.S.-made chips are sent to Taiwan, China or Southeast Asia for final assembly before being re-exported to end customers.
That indirectness makes sizing up the impact to the semiconductor industry difficult. One thing is for sure: The hit will be substantial.
The U.S. imported some $521 billion of machinery, $478 billion of electronics and $386 billion of vehicles last year, according to a Bernstein Research analysis. Those things tend to contain a lot of chips, and chip sales fall if people respond to higher prices by buying fewer of them. That will eventually translate into lower revenues and growth rates for chip makers, potentially crimping profits and stock-market valuations.
'Overall we don't see much in the way of positive feelings here for the semi group (or frankly for anything else),' Bernstein analyst Stacy Rasgon said in a note.
No wonder the biggest chip stocks tumbled Thursday; the PHLX Semiconductor Sector index was down about 7.5% at one point. Big chip buyers fell too: Apple was down around 8% and PC manufacturer Dell Technologies fell more than 15%.
It's hard to find bright spots. The tariffs give chip makers no additional incentive to grow manufacturing in the U.S. Their products are generally exported into the Asian supply chain anyway before they come back inside tariffed goods.
Companies that already have large U.S. footprints, like Texas Instruments and Analog Devices, don't get a leg up on foreign competitors because those rivals receive the semiconductor tariff exemption. Both of their stocks were down sharply Thursday.
A wave of order cancellations through the supply chain is likely on tap as chip makers and their customers anticipate flagging consumer demand caused by higher prices, Wolfe Research analyst Chris Caso said in a note. This would be similar to what happened during Covid lockdowns in 2020.
Consumer electronics will likely be hit hardest, but the tariffs will also increase the cost of highly demanded artificial-intelligence servers proffered by Nvidia, he said. This likely calls into question second-quarter earnings guidance across the industry.
'We think there is simply nowhere to hide from these effects,' Caso said. Nvidia was down more than 6% Thursday.
Chip companies have yet to issue profit warnings, reflecting the as-yet-uncertain extent of the impact. To dampen it, the industry may try to negotiate with the Trump administration to reduce tariffs where they hurt most, or to exempt more electronics and other goods that chips go into.
In a best-case scenario, the Trump administration responds by backing off many of the most damaging tariffs, making Thursday's declines a buying opportunity.
Given Trump's penchant for doubling down instead of backing down, the opposite scenario—even more tariffs—seems more likely.
Write to Asa Fitch at [e-mail]