Summary
Trump plans to impose tariffs of up to 100% on semiconductors manufactured in Taiwan, aiming to push U.S. tech companies like Apple, Nvidia, and AMD to produce chips domestically.
The tariffs target Taiwan’s TSMC, a key supplier, despite its partial U.S. production in Arizona.
Trump criticized Biden’s CHIPS Act for funding companies like Intel and proposed tariffs as an alternative incentive.
Experts warn the move could raise prices for electronics as most TSMC chips are assembled in Asia before export to the U.S.
What ends up happening in reality is that the tariff cost is effectively shared between the company selling and the customer (but not evenly). The company realizes that sales will plummet if the new price is $2, so they shave margin on their end to bring the price down to e.g. $1.75. But there’s obviously a lot of complexity behind exactly how much of the tariff cost is borne by the customer and the seller and it will vary by industry.
Correct, but the Rabbit Hole goes deeper.
The company will only reduce margin if they expect to lose volume and if they expect that they can regain sufficient volume by reducing margin to make up for the loss in margin.
And the reduction in volume will only happen if there are alternatives for consumers, including the alternative to not buy.
When consumers need the tariffed good regardless of price, the company will not reduce margin.
(Yeah, it’s complex math).
Long story short, someone else said it better, a tariff works well, with little impact on consumers, when there is a comparable non-tariffed alternative.
At the other end of that spectrum, i.e. an essential good with no non-tariffed alternative, the tariff cost is fully borne by consumers.
Finally, in the case of TSMC, their main product right now are the most advanced AI chips for which there is no US alternative. And US Big Tech needs volume that the US cannot produce.
Trump is basically taxing big tech.