Trump threatens to spike chipmakers’ costs by billions as China mulls exemptions

Letting chips fall where they may?

Trump's unreleased plans for semiconductor tariffs loom large.

The semiconductor industry is bracing to potentially lose more than $1 billion once Donald Trump announces chip tariffs.

Two sources familiar with discussions between chipmakers and lawmakers last week told Reuters that Applied Materials, Lam Research, and KLA—three of the largest US chip equipment makers—could each lose about "$350 million over a year related to the tariffs." That adds up to likely more than $1 billion in losses between the three, and smaller firms will likely face similarly spiked costs, estimating losses in the tens of millions.

Some chipmakers are already feeling the pain of Trump's trade war, despite a 90-day pause on reciprocal tariffs and a tenuous exception for semiconductors and other electronics.

In a Securities and Exchange Commission filing, Nvidia warned that arbitrary tariffs on imports will also come in the form of export curbs. Apparently, the US is planning to charge the company up to $5.5 billion to continue exporting its artificial intelligence H20 chips to China, Nvidia's filing said. Similarly, Advanced Micro Devices (AMD) warned in an SEC filing that export controls on MI308 products could spike costs by up to $800 million.

Nvidia's filing said that the US government's export curbs are designed to address "the risk that the covered products may be used in, or diverted to, a supercomputer in China."

According to CNBC, these disclosures are "the first major signs that Trump’s fierce battle with China could significantly hamper chip growth."

Trump investigating national security risks of tariffs

Currently, Trump is broadly investigating the potential impacts of semiconductor tariffs on national security in his goal to reset trade globally and pressure manufacturers to move operations into the US. It's unclear how long the investigation will take, and semiconductor industry groups representing US and global companies did not immediately respond to Ars' request to comment on how lack of clarity is disrupting businesses and supply chains now.

However, it is clear that these groups are sharing their concerns with lawmakers. Last week, SEMI, a global industry group, was holding talks in Washington, DC, with chipmakers and lawmakers, in a blog noting they were advocating "for policy changes vital to the semiconductor industry’s continued growth and innovation." In their blog, SEMI urged that the Trump administration should not rush their investigation and impose tariffs arbitrarily, without giving SEMI and other industry groups a chance to continue educating officials "on the nuances and critical importance of the complete semiconductor supply chain."

"Traditionally, such investigations have been conducted over a prolonged period of time for the government to collect data directly from companies and solicit feedback from industry," SEMI's blog said.

Since taking office, Trump has abruptly announced tariff shifts in vague Truth Social posts, rather than clearly explaining new trade policies in official White House fact sheets or announcements. His calculations for various tariffs have been criticized, and SEMI pointed out that its members are frustrated, experiencing "intense difficulties of tracking changes on tariffs and other policies."

Industry backlash may intensify once tariffs are officially announced. During Trump's prior administration, SEMI pushed against tariffs, warning that a 25 percent tariff on some China goods in 2019, including chipmaking equipment, would "hurt companies in the semiconductor supply chain by introducing significant uncertainty, increasing costs and subjecting companies to retaliatory tariffs while ultimately doing nothing to address our concerns regarding China’s trade practices."

But so far, SEMI has seemingly not rushed to issue such a strong warning about 145 percent tariffs on all China goods, perhaps including semiconductors and other electronics, only bemoaning that an April 11 addendum to the US tariff exemption list "did not result in a complete exemption for the semiconductor supply chain."

According to Reuters' sources, chipmakers anticipate tariff costs to include not just lost revenue but also missed sales and increased costs of diverting supply chains. Chipmakers must also bear the costs of complying with tariffs, like hiring staff to ensure no violations further disrupt business.

China reportedly weighing semiconductor exemptions

While the $1 billion estimate for US firms is concerning, it's clear that costs could spike further. It's impossible for the industry to assess the situation accurately at this point since Trump has not announced tariffs yet, and each chipmaker's products rely on multiple components that could be variably impacted. Chipmakers have already borne costs from the Biden administration's semiconductor tariffs, Reuters noted, and to provide some stability through the trade war, many companies, including SEMI's members, are still advocating for Trump to preserve the bipartisan CHIPS Act.

In its blog, SEMI went so far as to urge for "the full intended scope of the CHIPS Act" to be maintained, which seems unlikely since Trump has deemed the law "horrible."

Back in March, chipmakers reportedly feared that Trump might claw back CHIPS funding, and China reportedly moved to recruit top US scientists whose research could be impacted by Trump's supposed plan to kill the CHIPS Act. Perhaps most notably, Trump reportedly threatened the Taiwan Semiconductor Manufacturing Company (TSMC)—which, with Intel, is among the top beneficiaries of CHIPS Act funding—with a 100 percent tariff if it failed to build new chip fabs in the US.

Trump escalating tensions with TSMC and Taiwan could further shake up global trade. Ever since the Biden administration's export curbs began limiting China's access to the latest US tech, China has, like the US, built up its domestic supply chain, but both countries are still reliant on TSMC and Taiwan's semiconductor supply chain.

China has repeatedly claimed that it plans to wait out Trump's trade war and boasted that it will emerge victorious in the global market reset that Trump is pursuing. And that effort may begin with taking a softer stance on semiconductor tariffs to woo markets away from the US and into China. According to The New York Times, "a state-backed trade association in China issued guidance that would exempt a significant portion of advanced chips from China’s tariffs" on the US, to ensure its long-term access to chip-making equipment isn't jeopardized.

Further, experts have warned that if China runs out of ways to retaliate related to trade, it could find other ways to retaliate, and already, China may be moving in that direction. This week, NBC News reported that China, for the first time, "publicly accused three hackers of working for the National Security Agency and offered a reward for information leading to their arrest." That was a seeming retaliation for the US accusing China of a phone data hacking campaign last year, but it also appeared to be connected to Trump's ongoing public attacks on China. NBC News noted that "China provided little evidence for its claims," but Lin Jian, a spokesperson for China’s Ministry of Foreign Affairs, in a press conference urged the US to "cease unwarranted smears and attacks against China," in addition to stopping the alleged "cyberattacks on China," suggesting that the timing of the alleged "propaganda" was linked to a desire to agitate the trade war.

China's market may become more appealing to some chipmakers as the trade war drags on, the thinking goes, especially if Trump's climate of tariff uncertainty makes it harder for companies to commit to manufacturing in the US because of the sheer unpredictability of doing business there. However, many big tech companies, including Apple and OpenAI, have committed to manufacturing in the US after Trump took office. And for Nvidia, the hope seems to be that promising to invest up to $500 billion in AI infrastructure in the US, including building AI supercomputers, could spare some future pain.

Trump is expected to unveil his plan for semiconductor tariffs soon. But as the uncertainty persists, markets are already moving. Nvidia's stock has fallen 16 percent year to date, The Wall Street Journal reported, due to investor concerns of tariffs spiking costs or "a wider selloff among tech companies that do the bulk of their business in China." And CNBC reported that these declines "spilled over into the broader market," with stocks also slightly dipping for tech giants including Amazon, Apple, Google owner Alphabet, Meta, Microsoft, and Tesla.