The proposed 25% US tariff on semiconductors is expected to have significant implications for the semiconductor industry globally. The India Electronics and Semiconductor Association ( IESA), which is spearheading India’s semiconductor and electronics manufacturing industry growth, sees limited impact for India at the moment but says the move could put a big strain on US- Asia ties. Additionally one needs to look into the international treaties that the US may have signed with other countries and the potential violation if any.

According to them, “this move will impact costs, supply chains, innovation, and geopolitical relations, shaping the industry’s future in multiple ways. Ashok Chandak, President IESA, lists out the key factors to watch and what it means for India.

Trump tariff impact on India’s semiconductor industry

The imposition of a 25% or higher tariff on semiconductors by the United States is expected to have significant consequences for the global semiconductor industry. But India may not see any major short-term consequences as it is not a major exporter of semiconductors to the U.S.

Moreover, India’s import duty on semiconductors is already zero, meaning there are no reciprocal tariff concerns. According to Ashok Chandak, President IESA, “Most of India’s upcoming semiconductor manufacturing and Outsourced Semiconductor Assembly and Test (OSAT) facilities cater to global brands. India’s increasing domestic semiconductor demand will rely on locally manufactured chips, minimizing reliance on imports.”

Even for the long-term Chnadak is not too worried as he believes that, “in the long run, Indian semiconductor brands will not be at a major disadvantage, as the U.S. tariff is expected to apply uniformly to all exporting nations.”

Trump tariff impact: Strain in US-Asia ties

The impact on Indian industry might be limited but Chandak is worried about what the proposals could mean for the rest of Asia. Given the fact that Taiwan (via TSMC) and South Korea (via Samsung) dominate global semiconductor manufacturing, “the tariff could strain diplomatic and trade relations with these key U.S. Allies,” he added.

Trump tariff impact: Non-US trade alliances possible

IESA highlighted that typically the semiconductor industry thrived on globalization but now may shift towards more regionalized production hubs to mitigate future trade risks. “Other nations may strengthen their semiconductor trade relationships to counterbalance US tariffs. This could lead to closer semiconductor collaboration between Europe and Asia, ensuring steady semiconductor supply chains independent of the US,” Chandak outlined.

Trump tariff impact: Pressure on Apple, NVIDIA and Tesla margins

According to IESA studies, a 25% tariff will significantly increase the cost of semiconductors imported into the US, particularly from Taiwan, South Korea, and China. “The additional costs will likely be passed on to consumers, making smartphones, laptops, electric vehicles, and industrial electronics more expensive. Companies that depend on semiconductor imports, such as Apple, NVIDIA, and Tesla, will face increased production costs, potentially leading to reduced profit margins or higher consumer prices,” he added.

Trump tariff impact: Supply chain disruptions

The IESA study also highlights how the proposed tariff change may lead to reshuffling of global supply chains. Chandak expects companies to “diversify their supply chains by sourcing chips from tariff-free regions or increasing domestic investments to mitigate risks.” he was however apprehensive about shifting supply chains as it is a complex and time-consuming process, “Establishing new semiconductor manufacturing partnerships can take years, given the complexity and cost of semiconductor fabs.”

Trump tariff impact: Fab construction concerns

Typically semiconductor fabs are among the most complex and expensive industrial facilities to build. They could cost anywhere between $10 -25 billion per site. Chandak pointed out that companies must carefully evaluate multiple factors before making investment decisions, “including talent availability, tax policies, regulatory frameworks, and environmental and labour market conditions.”

Trump tariff impact: Challenges for US companies

Another impact of this, as per IESA, could be cost increases and delays for companies like Apple, NVIDIA and Tesla that rely on imported semiconductors. According to him, “while the tariffs might incentivize domestic semiconductor production, scaling up US manufacturing is a long-term process that requires significant investment and time.”

Though initiatives like the CHIPS and Science Act have been introduced, they believe it will take years to establish high-volume, cost-competitive fabs and immediate benefits are limited. “The tariffs alone will not drive rapid semiconductor manufacturing growth in the US. No company will shut down an existing multi-billion-dollar fab to relocate operations overnight. Instead, new investments will be carefully planned based on long-term demand forecasts,” he added.

Trump tariff impact: Scope of international treaty violation

The tariff structure is expected to encourage domestic production and align with the US. national security objectives, but this move may potentially violate the Information Technology Agreement (ITA), an international treaty that the US signed with many countries. As a result, Chandak believes that “major US semiconductor companies could resist the tariffs, given that many rely on Asian foundries and OSAT facilities for production.”

Ultimately, while tariffs are a significant factor, companies prioritize zero tariffs on the vast array of components and materials needed for semiconductor production over the chip itself. This could have broader implications on the overall supply chain and IESA believes that the benefits need to be weighed against the concerns and challenges involved.