How Tariffs Impact the Semiconductor Industry

As one of the few in Silicon Valley with over a decade of experience in D.C. and a degree in economics, I’ve been getting the same question the past few days: “What do you think about tariffs and how will they impact GPUs and AI infrastructure?” As with most things in this space, the answer isn’t as simple as a headline. AI infrastructure today lives at the intersection of export controls, multinational supply chains, unprecedented global demand, limited substitutes, and national security interests. GPUs are more than just tariffs—geopolitics meets AI token demand curves. And for anyone trying to navigate what happens next, I recommend reading one of my recent articles utilizing the aviation industry as a metaphor for GPU and AI infrastructure market. Both look similar - https://lnkd.in/gxZnJ4zT One thing is clear: demand for GPUs is still on fire, and the race for AI escape velocity is far from over. Here’s what to expect in a post-tariff world for GPUs and AI infrastructure: 🔸 Domestic GPU shortages will return. U.S.-bound shipments will face delays and cost increases. OEMs are incentivized to keep capacity outside the U.S. due to a more familiar and cost-effective supply chain, and their non-U.S. customers are more price sensitive. 🔸 GPU pricing will increase domestically. This is inevitable. Tariffs are effectively taxes, and even if they’re lifted, the trend toward supply chain resiliency means more costs are baked into the system. 🔸 Large data center projects will slow down. Due to their scale, they have high and uncertain exposure to increased hardware and construction costs. This will delay timelines. Smaller builds should be less impacted. 🔸 Rental markets will tighten. Expect higher prices and lower liquidity in the U.S. market. International GPU markets will remain more fluid and cost-efficient, creating regional pricing divergence. 🔸 Semi and OEM chains will become more resilient and more expensive. Some onshoring is inevitable, but it won’t be cheap. 🔸 Export controls will likely evolve. You can’t sustain high walls on both sides forever. If tariffs stay, export policies will need to shift. The math won’t work otherwise. 🔸 Third-party broker usage will increase. There was an existing regulatory reason and now there is a monetary reason. Broker usage always increases when these two these incentives meet. For what it’s worth, I don’t think these tariffs will last long. But the break in trust? That’s permanent. Like from COVID lockdowns, the disruption to trade and supply chains will have a short-term impact, but the structural shift is here to stay. The world may be fracturing, but trade and comparative advantage aren’t going anywhere. It's human nature. Neither is the global demand for AI compute.

Think semiconductors are spared from the tariffs? Think again. WIRED found that the list of exempted imports contains only a narrow range of items, omitting key products like GPUs, servers, lithography machines. It makes building data centers & chip plants harder. Exhibit A: We took a look at the over 1300 items sold by Nvidia. Only 16% of them will be exempt from tariffs based on the customs classification Nvidia discloses on its website. Other things, like the Nvidia DGX systems that suit ready-to-use enterprise need for data centers, could be taxed. Exhibit B: We know Taiwan exports many chip products to the US, but those exports are often downstream products like servers with chips in them. If we look closer at the product classifications, in 2024, only 10% of Taiwan’s exports to the US fall in HTS categories that would have been exempt from the new tariffs. So the vast majority would now be subject to 32% tariffs, which would be terrible for Taiwanese chip companies other than TSMC because they have thin margins and have no choice but to raise their prices, says Jason Hsu, former Taiwanese legislator and now a senior fellow at the Hudson Institute. Exhibit C: If the current administration really wants to bring back chip manufacturing, then they shouldn’t have omitted chip-making equipment in the tariff exemptions, like the lithography machine. Also, building a factory takes steel, aluminum, and everything else that’s now more expensive. “If you are a major chip producer who is making a sizable investment in the US, a hundred billion dollars will buy you a lot less in the next few years than the last few years,” says Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics. From Will Knight and me.

I spent much of the weekend talking with tech executives responsible for their supply chains. Here are some of my more crystallized thoughts on tech tariff impact in general. 1/ Two Lenses: Think of the impacts through two lenses: increased COGS through tariffs and a decrease in consumption from higher prices driven by higher COGS. We know the COGS increases through tariffs, but it is less certain how sellers will pass on tariffs to buyers, as is the elasticity of demand from potential price increases. 2/ Infra Racks & USMCA: The USMCA is still in effect, which means that *if* you pass the meaningful conversion tests, you will not get hit with tariffs. Think hyperscaler and OEM racks assembled in Mexico with PCAs created there. Import a top-of-rack switch for final assembly in the US? You'll pay the full tariff on that ToR, be it China or Taiwan. Manufacture that ToR in Mexico, you're good. 3/ NVIDIA full systems, trays could get hit hard: NVIDIA sells full systems, trays, and semis. NVIDIA's full systems and trays are primarily made in Taiwan and get hit with the full weight of tariffs. HGX-form factor GPUs, for example, are argued to be semiconductors and could be sent to Mexico, put into a server and wouldn't be tariffed. An NVIDIA switch would get hit, but its chips headed to Mexico to manufacture a switch? No. But there aren't many of those. NVIDIA could have a lot of exposure here unless they move more of their own AI server manufacturing to Mexico. Keep in mind that just because a vendor categorizes something as something, it could be challenged. ie calling a server a chip or a chip a server might be problematic with authorities down the road. 4/ Desktops and USMCA: USMCA also benefits desktop computers, where meaningful conversion is done in Mexico 5/ Semi tariffs: ALL bets are off for hyperscale racks and desktop benefits IF semis get tariffed. testing two scenarios regarding notebook cost increases and whether semis ultimately get hit. The first 6/ Notebooks hit hard: Most of these are manufactured in China and are affected by the full force of tariffs. ODMs in Mexico don't have the capabilities *yet* for these in Mexico. 7/ Price increase impact: Companies are modeling two scenarios for cost increases on infra if semis ultimately get hit and notebooks. The first is that demand declines. The other is to lock in the price and despecify the configuration with lower configurations. 8/ Friendly reminder: Services and software aren't tariffed. Let me know what you think.....

The biggest misunderstanding of the semiconductor industry: We celebrate new multi-billion dollar Advanced Node fabs in the US, but the reality is that our cars, factories, and power grids run on Legacy Node chips the very components we don’t make at scale and are most exposed to tariffs. This creates a strategic trilemma for every C-suite in the industry. The Situation: 1. Advanced Node Scarcity: The future of AI and high-performance computing is being built on advanced nodes (3nm, 2nm). This capacity is already booked solid for years by giants like Apple, Nvidia, and Tesla, locking out everyone else in the US. 2. Legacy Node Vulnerability: The chips that actually run the world (power management, industrial controls, automotive) are legacy nodes. The US is critically dependent on imports for these, making them ground zero for tariff impacts and geopolitical risk. 3. The 2026 Price Shock: Foundries and memory suppliers are signaling major price hikes for 2026, with some estimates as high as 30-50%. The message is clear: buy now or pay significantly more later. The Problem: This forces a painful debate in every boardroom: should we buy the chips we’ll need for the next 3-5 years today? The price increases make it seem logical, but no CFO wants to freeze Tens of Millions in working capital on the balance sheet. It’s a choice between two bad options: risk crippling capital inefficiency, or risk catastrophic supply disruptions and price shocks. The Implication: This isn’t just a supply chain issue; it’s a question of strategic sustainability. The current model is broken. You can’t build a resilient, long-term business by making massive, risky capital bets in an environment of total uncertainty. This brings me to a question I keep asking: We have a Strategic Petroleum Reserve to protect our energy supply. Why don’t we have a Strategic Chip Reserve? How do we build a sustainable supply chain that provides guaranteed access to both Legacy and Advanced nodes without forcing companies to bet the farm on inventory? The good news is that new models are emerging, and a few innovative companies are pioneering solutions that offer long-term supply security without the capital burden. Let’s discuss. #Semiconductors #SupplyChain #LegacyNodes #ChipReserves #Tariffs #Manufacturing

Tariffs and Tech: Why IT Can’t Ignore Global Trade Policy Tariffs used to be the concern of policy analysts and manufacturing teams. Not anymore. Today, they’re directly hitting IT departments—driving up hardware costs, destabilizing global supply chains, and even influencing the cost of cloud services. Tariffs on semiconductors, servers, and critical IT components are raising procurement costs by up to 45% in some cases. And the ripple effect is real: cloud providers are absorbing increased infrastructure costs—for now—but pass-through pricing is inevitable. The result? Strategic IT planning now requires a new layer of geopolitical and economic awareness. We’re entering a new cycle where IT leaders must think like economists, risk managers, and procurement experts. Tariffs aren’t a footnote—they’re a frontline issue. It’s time we adapt: * Diversify sourcing and vendors * Build supply chain visibility and resilience * Reassess infrastructure and cloud strategy * Plan for tariff scenarios in budget forecasts * Advocate for continued investment in cybersecurity—even when budgets tighten The most resilient IT organizations will treat tariffs not just as a threat—but as a forcing function for smarter, more agile operations. Trade volatility may not be within our control, but how we respond absolutely is. #ITStrategy #Tariffs #CIO #DigitalLeadership #CIOonline

Tariff Update: Semiconductor Imports Targeted Under Section 232 The White House issued a new proclamation imposing tariffs on certain advanced semiconductors and derivative products. What matters most is the legal mechanism? This action is taken under Section 232 of the Trade Expansion Act, following a national security investigation by the Department of Commerce. Key Highlights: ⇒ A 25% ad valorem tariff applies to a narrow set of advanced computing chips ⇒ Effective January 15, 2026 ⇒ Broad exemptions when imports support: - US data centers - R&D and startups - Repairs and replacements - Public sector use - Domestic manufacturing and supply chain buildout ⇒ Commerce and USTR have 90 days to pursue negotiations ⇒ Broader and higher tariffs are explicitly on the table if talks fail Why this is notable right now: This move relies on Section 232 national security authority. At the same time, the business community is still waiting on a US Supreme Court ruling on tariffs imposed under IEEPA. Different statute. Different legal foundation. ⇒ Supply chain takeaway: Semiconductors, AI chips, and related hardware are now formally treated as national security inputs, not just trade goods. Link to the details in the comments