The Indian Electronics and Semiconductor Association (IESA) has said that imposition of a 25 per cent or higher tariff on semiconductors by the United States is expected to have significant consequences for the global semiconductor industry. It, however, may not have any major short-term impact on India.
This move may potentially violate the Information Technology Agreement (ITA), an international treaty that the US and many countries has signed. As a result, major US semiconductor companies could resist against the tariffs, given that many rely on Asian foundries and OSAT facilities for production, it said.
“This move will impact costs, supply chains, innovation, and geopolitical relations, shaping the industry’s future in multiple ways,” Ashok Chandak, President, IESA, has said.
“India, however, is unlikely to experience any major short-term consequences due to this tariff, as it is not a major exporter of semiconductors to the US. Moreover, India’s import duty on semiconductors is already zero, meaning there are no reciprocal tariff concerns,” he said in a statement on Thursday.
He said that 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, minimising reliance on imports.
“In the long run, Indian semiconductor brands will not be at a major disadvantage, as the US tariff is expected to apply uniformly to all exporting nations,” he said.
Impact on US consumers
A 25 per cent tariff will significantly increase the cost of semiconductors imported into the US, particularly from Taiwan, South Korea, and China, which dominate global chip manufacturing.
The additional costs, Chandak said, 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.
Supply chain disruptions
He said the move would have an impact on global supply chains. “Companies may diversify their supply chains by sourcing chips from tariff-free regions or increasing domestic investments to mitigate risks,” he said.
However, shifting supply chains is a complex and time-consuming process. Establishing new semiconductor manufacturing partnerships can take years, given the complexity and cost of semiconductor fabs.
Semiconductor fabs are among the most complex and expensive industrial facilities to build, costing between $10 billion and $25 billion per site.
“Companies must carefully evaluate multiple factors before making investment decisions, including talent availability, tax policies, regulatory frameworks, and environmental and labour market conditions,” he said.
He felt that the move could hurt the US relationships with some of its key allies in Asia, while it might lead to forming of grouping of some countries to counter the move.
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“Taiwan (via TSMC) and South Korea (via Samsung) dominate global semiconductor manufacturing. The tariff could strain diplomatic and trade relations with these key US allies,” he said.
“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,” he said.
The semiconductor industry, which has traditionally thrived on globalisation, may shift towards more regionalised production hubs to mitigate future trade risks.
The IESA said the move could pose challenges to the US multinational tech giants such as Apple, NVIDIA, and Tesla, which rely on imported semiconductors for cutting-edge products, who could face delays and cost increases.
“While the tariffs might incentivise domestic semiconductor production, scaling up US manufacturing is a long-term process that requires significant investment and time,” Chandak said.
“The US government has already introduced initiatives like the CHIPS and Science Act, but even with these incentives, it will take years to establish high-volume, cost-competitive fabs,” he felt.
He felt that the tariffs alone would not drive rapid semiconductor manufacturing growth in the US. No company would shut down an existing multi-billion-dollar fab to relocate operations overnight. Instead, new investments would be carefully planned based on long-term demand forecasts.
“While the tariff may encourage domestic production and align with US national security objectives, it also presents substantial risks, including disrupting global supply chains, raising costs for consumers, and straining international trade relationships,” he said.
“Ultimately, while tariffs are a significant factor, companies prioritise zero tariffs on the vast array of components and materials needed for semiconductor production over the chip itself. This means that the broader supply chain implications could outweigh the intended benefits of the tariff,” he said.
