Semiconductor Tariffs Panned; Compliance Burden High for Derivatives, Commenters Say

All the comments from major semiconductor manufacturing companies and technology trade groups oppose tariffs on imported semiconductors, semiconductor manufacturing equipment, inputs used to make chips, and products containing chips.

Broader trade groups also largely oppose the use of tariffs to increase domestic semiconductor production, but when they did endorse such an approach, they said the tariffs should be only on chips used in specific legacy and memory chips from China.

Customers for chips -- aerospace, automakers, computer manufacturers and electrical equipment manufacturers -- all oppose tariffs.

Foreign governments, too, told Commerce that this is protectionism disguised as national security, and broad tariffs will hurt the U.S.

A think tank, the Center for a New American Security, did agree that there are national security risks given that China is using predatory trade practices to expand its market share of legacy chips, but said that tariffs or quotas should be coordinated with Korea, Japan and Taiwan. All the partners should create a common external tariff or quota on Chinese chips, and would then "provide each other unimpeded market access, agreeing not to restrict either imports or exports so long as goods are destined for use within a signatory market."

The Information Technology Industry Council also said working with allies mitigates supply chain risks, rather than creating them. "Lack of U.S. capacity in these areas is not a sign of unenviable import dependence, but rather a reflection of global specializations that characterize the global semiconductor industry," ITI said.

If the U.S. imposes tariffs across the segment, it would increase the cost for all domestic tech manufacturing, and companies would abandon some plans, ITI wrote. Its members have recently committed to more than $2 trillion in the domestic semiconductor ecosystem.

"Harmonized System (HS) codes for semiconductors and other articles can be overly broad and may include chips or products that do not pose [national security] risks; any resulting actions should take this nuance into account," ITI wrote.

It said there should be no tariffs on goods that use chips, and gave the example that there are more than 1,000 chips in a typical personal computer, from several countries and hundreds of suppliers.

It advised there should be no tariffs or quotas on:

• semiconductors for which adequate capacity does not exist in the United States
• semiconductors that are designed, fabricated, or packaged in the United States or in jurisdictions whose governments are closely aligned with U.S. security and foreign policy interests, such as Japan, Korea, and Taiwan
• semiconductors produced by, or imported from, countries that are making significant investments in U.S. semiconductor production
• semiconductors intended for projects that have been deemed critical to national security.

If there are tariffs, duty drawback must be preserved and tariffs shouldn't stack, ITI said, and it recommended that there should be rebates on tariffs for U.S. intellectual property in the foreign chips.

The U.S. Council for International Business said that tariffs on manufacturing equipment, inputs, chips, copper and critical minerals will greatly slow U.S. growth in chip production.

If tariffs are imposed on chips inside end products, that "would require importers to locate chips within various assemblies and pay the tariff on the value of such chips (as is the case with aluminum 'derivatives'). The complexity of a semiconductor 'derivatives' tariff will create a uniquely onerous compliance burden, adding cost and difficulty to US consumers and businesses." It asked that no such tariff be imposed.

Drawback must be preserved, it said.

The National Foreign Trade Council wrote that tariffs will impede investment, but if there are, there should not be duplication of HTS codes across multiple Section 232 annexes, such as the critical minerals and copper actions.

It asked that derivatives be spared.

"Imposing a remedy on any product that contains a semiconductor will affect thousands of downstream products -- some of which are complex [information and communications technology] equipment, while others would include everyday products ranging from lamps to ice makers and electric toothbrushes."

It said importers will have a hard time knowing the information that CBP requires "to enter the goods calculate the duty, such as having to report the weight and value of covered inputs and the country where these products were produced. These are not data elements that importers would normally have access to, and they are exceedingly difficult to replicate the further downstream the imported product is from the primary product."

It said used downstream goods should be excluded from the action. It said drawback must be preserved.

"The customs clearance procedures should be clear and simple. Specific information requirements, such as the declaration of country of origin and content ratio as seen with tariffs on aluminum derivatives, may create confusion and pose a significant burden on companies without clear guidance and adequate time for companies to gather necessary information," NFTC wrote. "Compliance challenges arising from complex customs procedures should be mitigated to the maximum extent possible, as they could cause an increase in operational costs and delays in procurement procedures, further reducing the competitiveness of related businesses."

The Computer and Communications Industry Association said the description of the investigation is too broad.

It "should distinguish between high-risk dependencies -- for example, reliance on foreign suppliers from countries of concern for military-grade field-programmable gate arrays -- and low-risk goods, such as the import of commercial-grade printed circuit boards used in consumer electronics from key partners."

It said there is minimal risk from Japan, South Korea, Taiwan and the Netherlands, but there is elevated risk from China, so there should be a "differentiated policy approach" for those countries.

It said the U.S. cannot scale domestic production of cellphones, computers, or low-end assembly, test and packaging. "These areas are characterized by high labor intensity, thin margins, and deeply entrenched global supply chains centered in lower-cost regions," the CCIA wrote.

Qualcomm wrote that hiking tariffs on chips or chips in electronics without waiting for chip foundries to start producing would harm chip design companies like itself without economic benefit. It added, "If actions taken under Section 232 result in closed foreign markets, retaliation, or decreased demand for products of U.S. companies, the United States’ position as a global technology leader would be put in great jeopardy."

Micron, the only domestic designer and manufacturer of memory chips, wrote that it has factories in Japan, Malaysia, Singapore and Taiwan. "Currently, only 2% of global memory production occurs in the United States -- all of it done by Micron at our facilities in Manassas."

However, Micron is planning to invest $140 billion in more U.S. production, which would give the U.S. 12% memory chip market share. If inputs or machinery become more expensive via tariffs, it would increase Micron's costs by hundreds of millions of dollars, and undermine the goal of increasing domestic production.

"Component level tariffs on derivative semiconductor products, if global in scope, would be complex for importers to implement," Micron wrote, and could increase prices on consumer electronics, servers, cars and defense equipment.

Texas Instruments wrote that it is planning to open seven new factories in Texas and Utah, which would increase its domestic production fivefold. It suggested that trade measures be used to incentivize customers to use U.S. chips in end products.

Fujifilm Corporation supplies chemicals to the semiconductor industry, and has manufacturing of these chemicals in the U.S., Europe, Japan, Singapore, South Korea, Taiwan and China.

"The manufacturing of a single semiconductor chip requires approximately 500 different process chemicals. This creates a highly complex global supply chain, with no single supplier or country capable of fulfilling all roles due to the specialized capabilities required for certain processes," the company wrote.

The company said it has made large investments in Arizona and Rhode Island, and recently bought factories in California and Colorado. But if tariffs are imposed, "the economic burden of tariffs would require the reallocation of capital expenditure budgets away from planned U.S. manufacturing investments toward managing the unplanned tariff expenses on existing product flows."

It said the goods it imports should be excluded from any action.

TSMC Arizona said it has a planned $165 billion investment for six advanced semiconductor fabs, two advanced packaging facilities and a major R&D center in Arizona, and imposing tariffs on the machines that make chips "will result in higher project costs and could delay progress, or in some instances endanger the commercial viability of many announced projects and those still under consideration."

TSMC noted that Commerce asked if tariffs or quotas are necessary to protect national security, and said the answer is that imports necessary to build, equip and operate chip foundries enhance national security.

It said no tariffs should be imposed on chips, or on consumer products, as that will dampen demand for chips, but if there are any tariffs on chips or inputs they "should be imposed with realistic adjustment times for TSMC Arizona and other U.S. businesses and investors who have already committed to substantial U.S. semiconductor production. This would include ensuring continued tariff-free access to inputs where local sourcing is unavailable or unfeasible or will take time to onshore, particularly from longstanding suppliers within the ecosystem."

Dell Technologies wrote that domestic semiconductor manufacturing is expected to triple from 2022 to 2032 as a result of CHIPS and tax credits already passed -- and those kinds of policies work, not import restrictions.

Hewlett Packard Enterprise wrote that tariffs on imported chips would make it hard to maintain and expand domestic manufacturing of supercomputers.

Mitsubishi Electric Power Products Inc. imports custom-built large-scale display systems under subheading 8528.52.00, a provision that is currently covered by tariffs, but MEPPI, as it called itself, said that HTS covers JumboTron type displays, which aren't really chips at all; they are LED systems.

"It is reasonable to assume that a completed product such as that being imported by MEPPI should also not be a target of the investigation if the primary semiconductor used in the manufacturing of the product is not," the company wrote. It said there is no current or planned production of the chips used in these screens.

Element Electronics, a South Carolina TV assembler, also noted its LCD Panels are in the annex of products that are not subject to reciprocal tariffs, presumably because of their connection to this investigation, but said LCD panels should not be in the scope either as a chip, or a derivative product. Element said even if 14.5% tariffs were to be imposed on the LCD panels it imports from Taiwan (10% reciprocal + 4.5% MFN), it could not compete with TVs assembled in Mexico, which can enter duty-free.

The National Electrical Manufacturers Association wrote that it uses legacy chips as it makes equipment for grid, automating factories, and more, and those chips are not domestically available. "Legacy semiconductors are also used across our economy in many applications that are critical to the Administration’s energy dominance, artificial intelligence, and domestic manufacturing goals," it said.

Four House Democrats, led by Rep. Nanette Barragan of California, said tariffs on telecommunications equipment containing chips would make it harder to finish Rip and Replace, where providers are replacing equipment from Chinese vendors like Huawei and ZTE, with federal funding support.

The Alliance for Automotive Innovation said only 2.8% of legacy chips used in the U.S. are from China, even though two-thirds of products contain Chinese chips.

The American Automotive Policy Council wrote that while domestic production of cutting-edge chips is growing, "there is little enthusiasm -- among both domestic stakeholders and allies -- for supporting older technologies used to produce the 'legacy' (a/k/a 'mature node') automotive grade chips, which are essential to the U.S. auto sector."

The average car has about 1,500 of these chips. "Any imposition of trade restrictions (e.g., tariffs or quotas) must be carefully calibrated to avoid cutting off essential supplies before alternative sources have been established," the group wrote.

Autos Drive America, which represents foreign carmakers with U.S. production, said there needs to be more auto chip production in the U.S. and among allies, given that China makes 32% of the segment.

"Having said that, such capacity does not yet exist, and tariffs on semiconductor imports that increase the cost or effectively cut off imports of auto-grade chips would again result in idled plants and laid off workers," the group wrote. "Tariffs on derivative products such as auto parts or even finished vehicles would be equally or perhaps even more disruptive."

It said that consultants estimated that a 25% tariff on semiconductors could increase the cost to produce a car by $1,200 to $2,500.

The American Chemistry Council and Society for Chemical Manufacturers and Associates noted that chemicals and solvents used in the semiconductor production process are also used for other purposes. "Such products are difficult to distinguish in their end uses, both in their production and when categorizing or classifying such products, especially by their Harmonized System (HS) codes," they wrote. Even domestic production uses raw materials and imported inputs.

They said they believe there is crossover between this Section 232 investigation, the critical minerals investigation and the Section 301 investigation on China's policies in semiconductor production, and the administration should be careful not to create contradictory policy outcomes.

The groups also asked that duty drawback be preserved if tariffs are imposed.

The National Association of Manufacturers argued that years of 50% Section 301 tariffs on Chinese chips have not changed China's subsidization, or its competition with U.S. chip exports.

"This underscores the need for broader and more comprehensive strategies -- beyond tariffs -- to support U.S. industry and advance U.S. national security and economic interest," NAM wrote. A better way to strengthen domestic production would be by maximizing exports, by negotiating zero tariffs in new trade deals, and preserving duty drawback, the group argued.

The Aerospace Industries Association asked for a delay until new sources can be found, and noted that the U.S. imports wafers, substrates, critical minerals and legacy chips.

The U.S. Chamber of Commerce said any measures should only hit China, and should be scoped narrowly "to address specific national security concerns in the legacy and memory segments."

The Business Roundtable also argued the scope is too broad, and the agency needs to engage with stakeholders, "consider a process for companies to petition for relief for inputs that cannot be sourced domestically or available in sufficient quantities to meet domestic demand, and provide sufficient phase-in periods for companies to adjust to any remedies..."

The Global Business Alliance said the scope should only apply to chips used in critical functions defined by the Cybersecurity and Infrastructure Security Agency. Otherwise, cars and medical devices could become 10% more costly.

The Semiconductor Industry Association in Japan wrote that complementary commercial relationships among allies strengthen the supply chain.

"If tariffs were imposed on products incorporating semiconductors, importers of these products would be required to trace and verify where the front-end and back-end processes of each semiconductor component were performed," the group wrote. "This would impose a significant administrative burden on U.S. importers."

The Taiwan Semiconductor Industry Association wrote that Taiwan can scale production, and the U.S. cannot meet its own demand, even as its production grows.

The Korea Semiconductor Industry Association noted that in 2024, the U.S. imported about $13.7 billion worth of semiconductor manufacturing equipment (heading 8486), about $500 million worth of chemical materials such as photoresists (subheading 3707.90), and about $1.6 billion worth of doped materials for use in electronics, including wafers (subheading 3818.00).

It said its chips are not a security threat, and are mostly in consumer devices like phones and computers.

"Imposing tariffs on finished goods containing semiconductors raises practical challenges in isolating the precise value attributable to the chip itself.

"Even if tariffs could be isolated and applied only to the semiconductor content of a finished products (an extremely difficult if not impossible task, as discussed above), the resulting impact would be substantial. For example, a smartphone contains a significant number of semiconductor components, which account for approximately 50% of the total hardware cost."

The European Union wrote that "we categorically reject the notion that EU exports of semiconductor related products could threaten U.S. national security."

Taiwan said that if the U.S. hikes tariffs on chips and related products from Taiwan, "it would not only increase production costs for U.S. companies and undermine their technological innovation and market competitiveness, but also diminish the willingness of Taiwanese enterprises to invest in the United States."

It said its investment supports 400,000 American jobs.