Will Trump's semiconductor tariffs disrupt India's global supply chains?

US President Trump has imposed a 25 per cent tariff on semiconductor imports, raising costs for US tech firms and disrupting global supply chains. Here's how it will impact the Indian industry

The proposed 25 per cent tariff on semiconductor imports by the Trump administration is expected to have a major impact on the global chip industry. However, India is unlikely to face immediate repercussions since it does not serve as a key semiconductor exporter to the US, according to analysts. Indian companies exporting finished electronic goods are adopting a wait-and-watch approach before committing to new investments.  Some experts also pointed out that imposing tariffs on semiconductor imports could potentially breach the Information Technology Agreement (ITA-1), an international trade treaty that mandates zero duties on semiconductors and IT products among signatory nations, including the US, according to a report by The Economic Times.

   

The Indian Electronics and Semiconductor Association (IESA) has acknowledged that a 25 per cent or higher tariff on semiconductors could significantly affect the global semiconductor sector. However, the immediate impact on India is expected to be minimal.

 

The imposition of a 25 per cent or higher tariff on semiconductors by the United States will influence costs, supply chains, innovation, and geopolitical dynamics, shaping the industry in several ways, said president of IESA Ashok Chandak, The Economic Times report quoted.  

 

On Tuesday, Trump announced his intention to impose tariffs “in the neighbourhood of 25 per cent” on semiconductors, automobiles, and pharmaceutical imports, reinforcing his US-first trade policy.  

 

Despite this move, India is not expected to experience major short-term effects as it is not a primary semiconductor exporter to the US. Additionally, with India’s import duty on semiconductors already set at zero, there are no reciprocal tariff-related concerns, Chandak mentioned.  

Impact on major US tech companies  

According to IESA studies, a 25 per cent tariff will substantially raise the cost of semiconductors imported into the US, particularly from Taiwan, South Korea, and China.

 

These additional expenses will likely be transferred to consumers, increasing prices for smartphones, laptops, electric vehicles, and industrial electronics, Chandak said, as quoted by The Financial Express. Companies relying on semiconductor imports, such as Apple, NVIDIA, and Tesla, may see higher production costs, leading to either squeezed profit margins or increased consumer prices.

 

Disruptions in the global supply chain  

The IESA report also suggests that the proposed tariff could trigger changes in global supply chains. Chandak anticipates that companies may seek to “diversify their supply chains by sourcing chips from tariff-free regions or increasing domestic investments to mitigate risks.” However, he cautioned that shifting supply chains is a complex and lengthy process.

 

Potential violation of trade agreements  

While the tariff policy is aimed at boosting domestic semiconductor production and aligning with US national security goals, it may run afoul of the Information Technology Agreement (ITA), an international accord signed by the US and multiple other countries. Given this, Chandak believes that major US semiconductor firms could push back against the tariffs, especially as many of them depend on Asian foundries and outsourced semiconductor assembly and testing (OSAT) facilities, The Financial Express reported.

 

Ultimately, while tariffs are a crucial factor, companies place greater emphasis on maintaining zero duties on the wide range of materials and components essential for semiconductor manufacturing. This broader perspective could shape the global supply chain, and IESA suggests that potential benefits of tariffs should be weighed against their economic challenges and trade implications, the news report said.