The US government will be “taking a look at Semiconductors and the WHOLE ELECTRONICS SUPPLY CHAIN”, President Donald Trump recently declared. Given his repeated promises to impose a tariff on imported chips, we must assume some action is coming. But what type, and to what end?

According to trade data, the US imports around $30bn in chips annually, largely from south-east Asia. Would tariffs lead companies to replace these imports with domestically made chips? Not necessarily. The US has hardly any of the labour-intensive assembly and packaging capabilities that have been offshored to Asia since the 1960s.

For that reason, if the US does impose a tariff on semiconductors, there is a chance that companies will respond by doing even more manufacturing offshore to offset the increased costs. Instead of importing chips and putting them into domestically manufactured appliances or cars, suppliers might move the entire process overseas. These finished products would still face a tariff, but at least the manufacturing would be low-cost.

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