Trump's recent tariff threat poses the potential to significantly increase your living costs.
Chips, those tiny components that power our electronics, might soon face tariffs of at least 25%, as mentioned by former President Trump. While we might not buy them directly, they're present in nearly every device we use, from medical devices to smartphones. From laptops to cars, they're an integral part of our daily lives.
The pandemic saw an increase in demand for electronics, particularly those used for remote work and learning. Companies struggled to keep up, turning to Taiwanese companies with higher production capacities than the U.S. Taiwan's advantage isn't just due to its proximity to raw materials or government investments, but also its commitment to the industry since the 1970s, leading to technological advancements not seen elsewhere.
In 2021, the U.S. imported $139 billion worth of semiconductors and electronic components, with Taiwan accounting for 27%. Despite the CHIPS Act, passed with bipartisan support in 2022, aiming to help the U.S. regain a leading position in chip manufacturing, the majority of advanced chips still come from Taiwan.
Tariffs might increase chip prices, affecting the cost of electronics for Americans. Domestic chip production could increase due to the CHIPS Act, but it would still require assembly abroad, potentially facing tariffs, especially given Trump's plans for reciprocal tariffs. Additionally, building new chip factories takes time, and costs are higher in the U.S. than in Asia.
In conclusion, while tariffs aim to encourage domestic chip production, they could initially increase electronics prices for American consumers. The long-term goal of boosting domestic production faces challenges due to construction time and cost.
Businesses heavily reliant on electronics might experience negligible upgrading due to the potential increase in chip prices caused by tariffs. Taiwanese manufacturers, being major suppliers of advanced chips, could face significant challenges if reciprocal tariffs are implemented, negatively impacting the economy. The push for domestic chip production, as seen in the CHIPS Act, necessitates upgrading of existing facilities or construction of new ones, which could be especially costly and time-consuming, potentially hindering business growth.
