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The Impact of Tariffs on Semiconductors, Nvidia, and America’s Manufacturing Renaissance

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The Rise of Globalism

A few days ago I wrote about Nvidia’s $500 billion investment in America. This comes at a time when companies are reinvesting back in America. Onshoring has become a significant trend that restarted earlier this year. Since the 90s, American companies have worked hard to capture the labor arbitrage in markets like India and China but now the trend is reversing.

In India, this was most common with outsourcing call centers and IT services. The U.S. indirectly created massive multi-billion dollar businesses like Infosys in India. Outsourcing to India became a thriving and profitable industry. There have been countless success stories that come from overseas.

But after the Dotcom bust in the 90s, America double-downed on making technology businesses more profitable. The venture capital industry matured and started investing heavily in software businesses. I think this was one reason why America became a service focused economy and stopped manufacturing as much in America. Software businesses can deliver high profit margins with very little investments.

The early 2000s was also the moment when e-commerce had begun to gain momentum with the rise of Amazon and Shopify. If you’ve bought anything online, you would be familiar with how well e-commerce has done for the past twenty years. Of course, buying online accelerated the need to ship products from across the world to the U.S.

Why Globalism Peaked in 2020

Over the past few decades, globalization reshaped America’s economy. I think every nation benefitted from this trade for decades. America is the largest consumer in the world and we started buying everyone’s goods and services. Importing goods from other countries made sense because manufacturing cost less in developing countries. The U.S. becoming a major net importer also resulted in a massive trade deficit in our favor.

You see, when other countries sell goods to the U.S., these tend to be dollar-denominated transactions. Which strengthens the U.S. Dollar, solidifying its position as the reserve currency of the world. What happens is that countries exporting to the U.S. have to invest U.S. dollars somewhere. Typically countries like China and Japan have been buying U.S. Treasuries to fund this trade. For decades, this had been a win-win scenario for the U.S.

First, by buying goods from other countries, the U.S. would indirectly be financing the economies of these nations. China is the best example of this success story. Through manufacturing and global trade, China has been able to lift the GDP per capita of its nation from ~$1k to ~$12k in 25 years. For context, the U.S.’s GDP per capita is ~$83k today. While the U.S. is the richest country in the world, our GDP per capita only doubled in 25 years, while China’s 12x’d in the same time period. China has lifted many of its citizens out of poverty during this time period.

However, this global trade peaked in February 2020. The major turning point in history was Covid becoming a global pandemic across multiple continents. For months, almost every country shut down their nation to the outside world.

When every country cut off its trading partners during the peak of the pandemic, it became obvious how many supply chain issues were apparent across the globe. So many countries, including the U.S., could not produce medical supplies or manufacture essential goods. During times of crisis, countries cannot be dependent on others for mission critical needs. It becomes a national security threat.

So after the pandemic was over, it became clear that every country would need to revisit their supply chain.

Trump’s Tariffs: Promises Made, Promises Kept?

Now President Trump has been speaking about America’s poor trade policies since 1988. His primary concern has been that we are carving out the middle class and outsourcing too much to other countries. America’s growing trade deficit with multiple countries is proof of an imbalanced trade. China exports 3x more to the U.S. than we export to them. That’s why President Trump campaigned on the idea that the U.S. can use tariffs as a tool to incentivize domestic manufacturing while stabilizing the growing deficits.

This has come as a surprise to many but President Trump has been talking about the trade issue for 37 years now. Now on April 2nd, 2025, President Trump announced “Liberation Day” tariffs, which increased tariffs for multiple countries across the border. There has been some questions about the tariff formula but the Administration has been clear about using tariffs as a tool for negotiations. Over 60 countries have approached the U.S. to renegotiate their trade agreements with the U.S., which has put us in an excellent position.

However the only country that hasn’t come to the table has been China. In fact, China has been aggressively increasing tariffs against U.S. exporters to as high as 145%. Unfortunately this will crush countless small and midsize businesses. But the current Administration has a plan and is executing on it.

Today I will speak on the semiconductor industry tariffs because they are critical and most interesting. I’m not an expert in semiconductors and I suspect a lot of these tariffs will change over time. U.S. Commerce Secretary Howard Lutnick has already clarified that “sector-specific” tariffs on chips are coming, tied to national security concerns.

Why Are Some Chips Exempt?

The exemptions cover electronics like smartphones and laptops, which rely heavily on foreign chips. For example, Nvidia’s H20 chip, designed for A.I. applications were hit with export controls to China but initially spared from U.S. import tariffs.

It quickly became obvious that immediate tariffs on all chips would spike costs for U.S. consumers and tech firms. Especially given America’s reliance on Taiwan’s TSMC, which produces 90% of advanced chips (≤7nm). The administration has granted a 90-day pause on some tariffs, but Trump has signaled new chip-specific tariffs could arrive soon, potentially at 145% on Chinese imports and 32% on Taiwanese ones.

These exemptions buy time for companies like Nvidia, AMD, and Apple to shift production to U.S. soil, aligning with the CHIPS Act’s $52.7 billion in grants and loans. However, the threat of tariffs has already cost Nvidia $5.5 billion in charges due to restricted China sales, and AMD anticipates an $800 million hit. The dual pressure of tariffs and export controls is pushing firms to invest domestically, but it’s not without pain.

Do I think the U.S. will be successful in onshoring manufacturing for all semiconductor chips? No, that’s very unlikely. Instead I think we will diversify our imports to other nations like South Korea and Japan for manufacturing. India will be a new prominent supplier, given how similar India's economy is to China. In fact, Apple already started manufacturing iPhones in India when they faced the first semiconductor crisis in 2022. India is seeing a 60% increase in iPhone assemblies over the past year.

Semiconductors in America: A New Era

Now the U.S. is not unfamiliar with the world of semiconductors. In fact, the transistor chip was invented in 1947 at Bell Labs in NJ. And the first semiconductor integrated chip was invented at Texas Instruments in 1958. Semiconductors have a deep and rich history in America. But unfortunately that industry has been outsourced to other countries and we lost our edge over the past few decades. (for context, I have written about the semiconductor trade war and Texas Instruments in the past)

America birthed the semiconductor industry, laying the foundation for today’s tech giants. Key milestones include:

• The Transistor (1947): Invented at Bell Labs by John Bardeen, Walter Brattain, and William Shockley, the transistor replaced vacuum tubes, enabling modern electronics.
• Fairchild Semiconductor (1957): Founded by the “Traitorous Eight,” including Gordon Moore and Robert Noyce, Fairchild pioneered integrated circuits and birthed Silicon Valley’s venture capital culture. Its alumni founded Intel, AMD, and others.
• Moore’s Law (1965): Gordon Moore predicted that transistor counts on chips would double every two years, driving exponential computing growth. His Intel co-founder, Andy Grove, emphasized paranoia as a survival strategy, shaping the industry’s relentless innovation. Andy wrote great books.
• Claude Shannon’s Information Theory (1948): Shannon’s work on digital circuits and data compression underpins chip design and AI algorithms.

American heroes like Moore, Grove, and Shannon built an ecosystem where innovation thrived, but by the 1990s, manufacturing shifted to Asia for cost savings, leaving the U.S. vulnerable.

Key Players: TSMC, Texas Instruments, Qualcomm, and Nvidia

• TSMC: Founded in 1987 by Morris Chang, TSMC revolutionized the foundry model, manufacturing chips for fabless firms like Nvidia and Apple. Producing 60% of global chips and 90% of advanced nodes, TSMC’s Arizona investment responds to U.S. policies, though most 3nm production remains in Taiwan.
• Texas Instruments: A pioneer since 1951, TI focuses on analog and embedded chips for automotive and industrial uses. Its Dallas fabs and $30 billion investment in Texas bolster mature node production.
• Qualcomm: Founded in 1985, Qualcomm designs mobile chipsets (e.g., Snapdragon) but outsources to TSMC. Its San Diego base drives 5G and AI innovation, benefiting from U.S. design strengths.
• Nvidia: Launched in 1993 by Jensen Huang, Nvidia transformed from a graphics card maker to an AI powerhouse. Its GPUs, made by TSMC, power data centers and autonomous vehicles. Huang’s $500 billion U.S. pivot reflects tariff pressures and CHIPS Act incentives.

But today the U.S. is witnessing a semiconductor manufacturing renaissance, driven by strategic investments and policy incentives. Nvidia’s $500 billion commitment to produce A.I. supercomputers and Blackwell chips in Arizona and Texas is a headline-grabber, expected to create hundreds of thousands of jobs and trillions in economic value over decades. AMD is joining the fray, announcing that its fifth-generation EPYC CPUs will be made at TSMC’s Arizona fab, marking the first time AMD chips are produced domestically. Apple, too, is leveraging TSMC’s Arizona plant for some of its chips.

Nvidia’s Tariff Challenges

Nvidia, the $2.7 trillion semiconductor giant, faces significant tariff-related hurdles. The new Trump tariffs will put export controls on Nvidia’s H20 chip to China, aimed at curbing supercomputing risks. Nvidia’s stock dropped 7% because these new tariffs will trigger a $5.5 billion charge against future earnings. Tariffs on Nvidia’s key suppliers, TSMC and SK Hynix, could raise GPU costs, impacting AI firms reliant on its chips. ASML, which makes EUV lithography machines, also reported a 7% share drop due to tariff uncertainty, signaling broader supply chain risks.

Yet, Nvidia is adapting. Its Blackwell chips, using TSMC’s 4NP process, are now produced in Arizona, and Texas supercomputer plants will bolster AI infrastructure. This $500 billion plan, partnered with TSMC, Foxconn, and others, aligns with Trump’s manufacturing push, potentially shielding Nvidia from future tariffs.

Why Arizona and Texas?

Arizona and Texas are emerging as semiconductor hubs due to:

• Infrastructure: Arizona’s Phoenix area hosts TSMC’s $65 billion, three-factory complex, with the first fab 4nm/5nm fab operational since late 2024. Texas benefits from Samsung’s $6 billion Taylor facility and Nvidia’s supercomputer plants.
• CHIPS Act Funding: TSMC received $6.6 billion, Samsung $6 billion, and Intel over $8 billion to expand U.S. production.
• Talent Pool: Universities like Arizona State and UT Austin supply engineers, while state programs (e.g., New York’s $250 million workforce initiative) train technicians.
• Policy Pressure: Trump’s tariffs, including a threatened 100% duty on TSMC if it doesn’t invest in the U.S., have spurred commitments like TSMC’s additional $100 billion for Arizona.

In many ways, President Biden accelerated these semiconductor investments when his Administration introduced the CHIPS Act in 2022. This was shortly after the U.S. faced significant supply chain shortages related to semiconductor chips. Remember, these chips are essential components to various defense, automotive, and consumer electronics.

The CHIPs Act was essential to addressing America’s National Security concerns and countering China’s influence. However, the stack difference between the Biden and Trump administration is that Biden had the government fund/subsidize semiconductor expansion, Trump is incentivizing companies to invest directly. It’s also worth noting the difference in scale between these two Administrations. The CHIPs Act authorized $280 billion in funding over ten years, Biden only appropriated $52.7 billion for the industry. The remaining portion was designed to fund other government agencies like NASA.

With the new Trump’s tariffs, Nvidia has committed to $500 billion in the U.S. and TSMC has committed to invest an additional $100 billion in the U.S. This doesn’t include the $500 billion SoftBank to invest alongside OpenAI and Oracle in A.I. within the U.S. too.

America’s Future Trade War

The semiconductor industry stands at a crossroads. Trump’s tariffs, paired with the CHIPS Act, are spurring a U.S. manufacturing revival. Nvidia’s $500 billion bet is proof. Yet, tariff costs, supply chain risks, and global dependencies loom large. America invented the transistor and now wants to reclaim its manufacturing edge. For investors, this is a high-stakes moment to back firms navigating tariffs while capitalizing on domestic growth.

Do I think the U.S. will reclaim its leadership in semiconductor manufacturing? Yes, but because it is a national security risk. A.I. will be the main driver for this demand. I’m not sure how long these investments will take to play out but the tariffs are incentivizing capital to flow in the right direction. These investments aim to triple U.S. fab capacity by 2032, raising America’s global share from the low-teens to the high-teens. But I think supply chain challenges will remain because building advanced fabs takes 2–3 years, and the U.S. still relies on Asia for 60% of chemicals and 90% of advanced chips.