The future of semiconductor manufacturing in the U.S. is going to be largely influenced by the wider economic policy direction and the tariff regime of the Trump administration. Trump firmly believes that the semiconductor industry of the country should be led by American or American-based companies and the policies or actions taken by Washington will have a direct impact on what happens on the ground in this industry.
It has become clear that the Trump administration is looking at tariff threats and actual tariffs as way to encourage foreign firms to undertake manufacturing on U.S. soil. However, events so far show that the tariff regime has been erratic even if it is being used aggressively.
For example, the federal administration has threatened to impose steep tariffs on imports of components and semiconductors from China into the U.S. However, this policy isn’t specific to the semiconductor industry because it is seen as leverage in negotiations with China for a comprehensive trade deal. It is therefore not clear what the policy direction will be once a deal is agreed.
This complicates matters for semiconductor companies operating on U.S. soil because they depend on many parts sourced from China. This is because those components tend to be more affordable than similar ones sourced from other countries, and they are also of the quality and specifications needed to produce top-notch products like AI chips.
As if that complication wasn’t headache enough, the American president, as recently as this August, made threats that he would levy tariffs reaching 100% on the semiconductors manufactured by foreign firms which don’t establish production facilities within the U.S.
For semiconductor companies within the U.S., this threat has major implications on their projections and operations if the administration goes through with it. Not many companies make all the parts and components they need since it is very expensive to establish and run fabrication units. Consequently, firms like TSMC have found success as contract manufacturers who receive large orders from tech firms like Nvidia.
Fortunately, TSMC has a fab facility in Arizona and is establishing three more to make cutting-edge semiconductor products. However, not every American tech firm sources the needed parts from TSMC. This means that the cost of the inputs they need could skyrocket and put the economic viability of their products at stake since buyers often gravitate towards producers who offer quality products at globally competitive prices.
The tariff and policy direction of the United States is still very much in flux, and semiconductor software firms like Broadcom Inc. (NASDAQ: AVGO) will be following what happens in Washington in order to gauge how company strategies and operations could be impacted.
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