While US President Donald Trump announced the likely imposition of 25 per cent tariffs on imported automobiles, semiconductor chips and pharmaceuticals, Nomura said that the direct impact of higher chip tariffs on Asia will be limited. “We believe the direct impact of higher chip tariffs on Asia will be limited, as there is limited scope for substitution (inadequate fab capacity in the US and concentration of advanced nodes in Asia), which gives the region some bargaining power, especially amid the price inelasticity of US demand for AI chips. The cost will mainly be borne by the US,” said Sonal Varma, Managing Director and Chief Economist (India and Asia ex-Japan), Nomura.
Trump has suggested that the tariffs could take effect as early as April 2, coinciding with cabinet reports on trade measures. On 27 January, Donald Trump told the House Republicans that “In the very near future, we’re going to be placing tariffs on foreign production of computer chips… to return production of these essential goods to the (US)” and that foreign chipmakers “didn’t need money, they needed an incentive, and the incentive is going to be, they’re not going to want to pay a 25, 50 or even 100% tax” (source: Financial Times ). On 18 February, he reiterated this message, saying that tariffs would be “25% and higher, and it’ll go very substantially higher over a course of a year”.
A look at Asia’s chip exports to the US
Per Nomura, the US is estimated to have imported $80 billion worth of chips from Asia in 2023 which equates to 82 per cent of total US chip imports. The US only imported $7.8 billion of chips from Korea. Now, chips manufactured in Korea are usually sent to China or Vietnam for assembly, testing and packaging (ATP), and are then re-exported to the US.
A limited direct impact
Per Nomura, the direct impact of higher chip tariffs on Asia will be muted for two reasons: limited room for substitution and price inelasticity of AI demand. Unlike the tariffs on steel and aluminium where the US domestic substitutes are easily available, the concentration of chip manufacturing (fabs) capacity in Asia and the lack of assembly, testing and packaging (ATP) facilities in the US provide the region with a stronger defense.
According to a joint report by BCG-SIA (2024), the US currently accounts for approximately 10 per cent of the global fab capacity, mainly in DAO and logic chips using 10-22 nanometer (nm) technology. Nomura said, “In advanced logic chip manufacturing (technology nodes less than 10nm), Korea dominates in memory chip manufacturing (Figure 6). Given chips make up 10-15 per cent of GPUs (graphics processing units), every 10 per cent increase in chip prices will raise GPU prices by 1.0-1.5pp, which we believe big tech firms can absorb. For the AI race, therefore, we believe US demand for advanced chips is less price sensitive and the capex plans of US cloud service providers will sustain.”
Further, the report stated that the capacity utilisation in US “semiconductor and related electronics components” stood at 76.2 per cent in January 2025, close to the long-term average of 79.4 per cent, which imply that there is limited ability to substitute imports for domestic production across key downstream user industries, such as automobiles, computers & electronics and telecommunications. Thus, a higher tariff on chips will have a direct impact on US corporations that will witness a cut in their profits and on US consumers due to higher inflation, and not on Asian chip manufacturers, Nomura maintained.
Indirect effects of higher chip tariff
While Nomura maintained that the direct impact of a higher tariff on chips on Asia is expected to be limited in the near term, it added that a larger risk of economic damage to the region from indirect effects is projected, as the multitude of tariffs pushes up US inflation and weighs on US consumer demand.
Trump’s tariff threat on chips comes against the backdrop of the additional 10 per cent tariff already imposed on China. Further, including 10 per cent tariffs on Canada and Mexico, a ramp-up of tariffs on China by another 25 percentage points in 2025, as well as a 5 per cent across-the-board tariffs levied in Q2 and Q3 (10 per cent in total), Nomura’s US economics team forecasted US core inflation to significantly go above 3 per cent in mid-2025. Further, the higher tariffs will also lead to a slowing of real personal consumption expenditure growth from an annualised rate of 4.2 per cent in Q4 2024 to 1.4 per cent by Q4 2025. This could have a more material impact on Asian exports, it added.
While semiconductors accounted for only 5.4 per cent of total Asian exports to the US in 2023, exports of electronics (including semiconductors) had a more hefty share of 32.4 per cent. Now Asian economies have a presence across different stages of the electronics value chain: from chip manufacturing (Korea and China) to supplying electronic components (ASEAN and China), assembly-testing-packing (ASEAN) to assembling consumer electronics (China, Vietnam and India). Therefore, Nomura said, a slowdown in US final demand for consumer products can have a more material and widespread impact on the region.
Why a ‘chip’ focus?
The US administration views domestic semiconductor (chips) manufacturing as essential from a national security perspective and any reliance on foreign chips is seen as a source of vulnerability. Earlier, under the Biden administration as well, the process of shifting chip manufacturing (fabs) back to the US started with the CHIPS Act and Science Act which provided subsidies to semiconductor companies. The funding, however, comes with a catch: new geographical manufacturing restrictions. The CHIPS Act prohibits funding recipients from expanding semiconductor manufacturing in China and countries defined by US law as posing a national security threat to the United States. Donald Trump intends to continue the process, but by “using tariffs as a stick”.
Nomura said, “It is uncertain whether Trump will impose tariffs on chips or if this is a negotiation tactic to incentivise Asian fabs to invest more in the US. Imposing tariffs on chips is also not easy, since the supply chain is very complicated and production processes are geographically very dispersed.”
