New York (CNN) — President Donald Trump is eyeing a “25% or higher” tariff on all semiconductor chips the United States imports, with rates likely to “go very substantially higher over a course of a year,” he told reporters on Tuesday.
Unlike cars and pharmaceuticals — which Trump said would soon face tariffs of at least 25% — chips are not something the average American buys on their own. But these miniature components power just about every piece of electronics we use.
Medical devices, Wi-Fi routers, laptops, smartphones, cars, household appliances and LED lightbulbs are just a few of the many examples of where chips are found. And these products often don’t just require one or two. For instance, new cars contain thousands of them.
A chip shortage quickly ensued at the height of the Covid-19 pandemic, as Americans sought to use their stimulus checks on upgrading their technology – particularly laptops, monitors and other electronics crucial for remote work and learning – and companies struggled to meet all the newfound demand.
Eager to bring products to market, however, they looked to Taiwanese companies, which had — and continue to have — higher advanced chip production capacities compared to the United States. Not only has Taiwan benefitted from its proximity to the raw materials needed to produce chips, but its government has been investing in the industry since the 1970s, providing direct support to manufacturers that’s led to technological advances virtually unmatched by other countries.
In total, the US imported $139 billion worth of semiconductors and other electronic components last year, according to Commerce Department data. Taiwan accounted for 27% of those imports, making it the source of chips and electronic components sent to the US. The value of chips and electronic shipments coming to the US from Taiwan increased more than sixfold from $9.4 billion in 2019 to $36.9 billion in 2024.
Meanwhile, the US exported $70 billion worth of chips and electronic components worldwide last year.
Given how dependent the US is on Taiwanese chips, especially advanced ones needed in newer electronics, a 25% tariff on chips could significantly raise the price of many of the goods Americans purchase.
Domestic chip production is on track to increase but still trails far behind Taiwan
The CHIPS and Science Act, which Congress passed in 2022 with bipartisan support, allocated $53 billion over the next five years to help the US regain a leading position in semiconductor chip manufacturing.
The investment and incentives provided to domestic chip producers could help the US triple its chip manufacturing capacity by 2032, according to a 2024 report published by the Semiconductor Industry Association, a trade organization, and the Boston Consulting Group.
But even as some companies, including top chipmaker Taiwan Semiconductor Manufacturing Company and Intel, Micron and Samsung, have moved more production to the US to reap the benefits of the CHIPS Act, the vast majority of advanced semiconductor chips powering consumer electronics that Americans use still come from Taiwan.
The country’s production alone accounts for over 90% of the world’s advanced chip manufacturing capacity, according to a 2020 report published by the nonpartisan Congressional Research Service.
Even if tariffs spurred more domestic chip production, there’s “very little electronic assembly taking place in the US,” said John Dallesasse, an electrical and computer engineering professor at the University of Illinois Urbana-Champaign.
Because of that, any chips produced in the US would still have to be shipped abroad to countries like Taiwan, South Korea, China and Mexico to be put into the finished electronics Americans buy. Which means the goods could still face tariffs, given Trump is preparing to enact “reciprocal tariffs” on other nations and has already enacted a 10% tariff across all Chinese imports.
Furthermore, it’s not like new factories can get built overnight. “Any new chip factory takes at least two to three years to build,” said Rakesh Kumar, who also teaches electrical and computer engineering at the University of Illinois Urbana-Champaign. So using the threat of tariffs to help onshore chip production will have negligible affects in the near term regardless, he added.
And still, it will cost more to make chips in the US compared to Asian countries, Kumar said.
Bottom line: A 25% tariff on chips will almost certainly increase the price of chips one way or another, and that will raise the price of electronics for Americans.