Decoding Trump’s tariff plans

At the end of January 2025, the U.S. government revealed its intentions to impose tariffs on imported pharmaceuticals, steel, and computer chips. This action seeks to strengthen local manufacturing and tackle trade imbalances. Yet, these steps might profoundly impact global trade relations, especially influencing major U.S. partners in Asia.

Effect on Semiconductor Sector

The semiconductor industry is set to be notably impacted by these planned tariffs. Asia leads in worldwide chip production, producing over 80% of the planet’s semiconductors. Prominent firms such as Taiwan Semiconductor Manufacturing Co. (TSMC) and South Korea’s Samsung Electronics along with SK Hynix are key suppliers to the American market. For example, TSMC, recognized as the largest contract chip manufacturer internationally, earns about 70% of its revenue from North American customers, including tech powerhouses like Nvidia and Apple. Although TSMC is investing in a $65 billion production facility in Arizona, most of its output still occurs in Taiwan, which exposes it to the proposed tariffs. In a similar vein, Samsung and SK Hynix, which together hold around 75% of the global DRAM market, might encounter obstacles due to their significant exports to the United States.

Issues in the Pharmaceutical Industry

Pharmaceutical Sector Concerns

Steel Sector and Wider Economic Effects

The introduction of tariffs on steel imports aims to rejuvenate domestic steel manufacturing. Nonetheless, these measures might raise costs for sectors dependent on steel, such as the automotive and construction industries. Increased input costs could cause higher prices for consumers and possible interruptions in supply chains. Additionally, these tariffs may put pressure on relationships with major trading partners and trigger retaliatory actions, further complicating the landscape of international trade.

International Trade Relationships and Possible Retaliation

The suggested tariffs have raised worries among U.S. allies in Asia. Nations such as Taiwan, South Korea, and Japan, crucial to the worldwide supply chains of semiconductors and pharmaceuticals, could face economic difficulties due to diminished competitiveness in the American market. These countries might look to negotiate exemptions or contemplate retaliatory tariffs on U.S. exports, possibly initiating a cycle of trade conflicts.

The proposed tariffs have elicited concerns among U.S. allies in Asia. Countries like Taiwan, South Korea, and Japan, which are integral to the global supply chains of semiconductors and pharmaceuticals, may experience economic challenges due to reduced competitiveness in the U.S. market. These nations might seek to negotiate exemptions or consider retaliatory tariffs on U.S. exports, potentially leading to a cycle of trade disputes.

Domestic Economic Considerations

While the tariffs aim to promote domestic manufacturing, they could have mixed effects on the U.S. economy. Importers are likely to pass increased costs onto consumers, leading to higher prices for goods such as electronics and medications. Additionally, industries dependent on imported components may face challenges in sourcing materials, potentially hindering production and innovation. Economists caution that such protectionist measures could disrupt supply chains and may not yield the intended benefits of job creation in the targeted industries.

By John K. Fomby

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