Semiconductor Market Caught In Middle of US-China Trade War

Credit: Artem Oleshko/ShutterstockCredit: Artem Oleshko/Shutterstock
U.S. tariffs on Chinese goods are set to affect the chip market. That's because several categories of goods affected by the tariffs, the full list of which was finalized earlier this week, are related to semiconductor manufacturing and other aspects of the industry. Companies forced to pay more to import the equipment they need to make their products--or the products themselves--could pass along those costs to the consumer.

President Donald Trump and his administration started to threaten to enforce tariffs on $34 billion worth of goods from China in early July. The preliminary list of products affected by the tariffs was broad, yet it wasn't immediately clear how they would affect tech companies and their customers. However, many companies rely on the low cost of Chinese labor to manage their supply chains, so it's reasonable to expect tariffs to cut into those margins.

Those fears were present when the U.S. tariffs were expected to affect $34 billion worth of goods. As that number jumped to $200 billion a few weeks later, reports indicated that companies like Apple, Sonos and others could feel the pain. That's because their wearable devices, wireless speakers and other products are part of the "data transmission machines" included on the Trump administration's list of tariffed goods.

Now the chip market is caught in the crossfire between the U.S. and China. Members of the U.S. House of Representatives warned on July 27 that the list of tariffed goods would negatively affect the semiconductor industry even though much of the process of making them happens in the U.S. The representatives asked the administration to exclude semiconductor-related goods from the list to preserve the U.S.' market position.

The Semiconductor Industry Association echoed the representatives' complaints. As the association said in a blog post last month about the letter:

"[A] bipartisan group of 49 Members of Congress – led by Reps. Pete Sessions (R-Texas) and Zoe Lofgren (D-Calif.), the House co-chairs of the Congressional Semiconductor Caucus – make a compelling case that tariffs on semiconductors would not accomplish the Administration’s goal of combatting [sic] China’s unfair and discriminatory trade practices. Instead, they would harm U.S. businesses and consumers. SIA shares this position and continues to urge the Administration to not place tariffs on semiconductors and related products."

Those warnings appear to have fallen on deaf ears because the categories affecting semiconductor-related equipment remain in the list of goods affected by the tariffs. Now the chip market and its customers will have to figure out how exactly these tariffs will affect their wallets (Or, in the companies' case, their untold numbers of bank accounts). We'll see if the administration's efforts will do more harm or good in this sector.

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  • JamesSneed
    So far the stock market doesn't seem to care about the Tariffs. Once the back pressure from all the companies using the tax code savings to do buybacks stops I have a feeling we will see a huge downward trend. Those buybacks are putting a floor on the market but that will eventually stop and when it does it's going to hurt. I meaniton all of that because until the market gets nailed Trump isn't going to budge.
  • venym
    FYI - This trade war has been going on for years, Trump is just the first President to fight back. Is it fair that goods we send to China are subject to tariffs, however those they send here are not? This only promotes US companies to build plants in China to produce goods; creating jobs in China, not the US.
  • BobSmith809
    I guess the message is buy yer gadgets now...