Impact of U.S. Tariff Policies and AI Advancements on the Electronic Components Supply Chain – February 21, 2025
The global semiconductor industry continues to straddle the precipice of uncertainty as geopolitical tensions and new innovations impact the market. Since the U.S. presidential inauguration, markets have been rapidly adjusting to the changing landscape, with mounting concerns over tariffs.
Concurrently, after mitigating the worst excess inventory glut, the semiconductor industry expected a relatively quiet 1H25. Consumer demand has been remarkably tepid within the last year, and with the rising impact of tariffs, it might fall further as higher prices begin to affect end-users. However, the popularity of artificial intelligence (AI) has kept demand in specific component markets up. With new models like DeepSeek throwing the industry into disarray, more parts could see demand explode, triggering meteoric price hikes.
U.S. Tariffs Could Target Taiwan’s Semiconductors Next
Since taking office, Trump has prioritized enacting new tariffs as part of his plan to promote American businesses domestically. These plans have sent shockwaves through numerous industries as organizations grapple with growing uncertainty around diminishing availability, price trends, and increased lead times. The semiconductor industry has played a prominent role in geopolitical tensions over the last several years. With AI’s prominence in national security discussions, chips have even been in the crossfire.
During his presidential campaign, Trump has floated the idea of leveling tariffs against Taiwan. Many organizations have taken a wait-and-see approach before Trump’s inauguration to see if these claims would come to fruition. With the recent tariffs levied against Canada and Mexico, though on hold for the next 30 days, companies are taking a more proactive approach to these previous comments.
On January 27th, Trump announced that he intends to impose tariffs on Taiwan to bring chip production back to the United States. Technology experts say that Trump’s plan is ultimately to get TSMC to the negotiation table.
“The incentive is going to be they’re not going to want to pay a 25, 50, or even a 100% tax,” Trump stated.
Reuters reports that many tech firms in Taiwan, aside from TSMC, will face challenges if Trump follows through with his plans to impose tariffs on imported chips. Earlier this month, Trump announced that he planned to announce more reciprocal tariffs on some economies, a significant escalation of his “offensive to reshape global trade relationships in ways he considers to be in America’s favor.”
Taiwan has sent officials to Washington to discuss the impact tariffs would have on the supply chain, which extends beyond what the Trump Administration had previously considered.
Economy Minister Kuo Jyh-huei didn’t share many details about what the officials plan to speak on. However, “they will as much as possible give some rather good explanations to Trump’s people about Taiwan’s chip industry and that Taiwan is the United States’ best partner.”
Taiwan has always stated that its business with the U.S. has been a win-win situation, and to ward off tariffs, it could possibly follow Japan’s example and import more energy from the U.S.
“In reference to Japan, he has great determination when it comes to energy,” he said, referring to Trump. “We hope we can satisfy U.S. demands when it comes to this.”
Should the tariffs be instated, the results would mean higher costs for U.S. importers, leading to inflation that would significantly affect domestic consumers. Unlike China, where most imports can be switched to alternative suppliers, Taiwan’s chips are not easily replaced.
Darson Chiu, Economics Professor at Tunghai University, states, “TSMC’s chips cannot be easily replaced. Even Intel struggles to produce them. Eventually, U.S. importers would have no choice but to pay the higher tariffs.”
In his article “How a TSMC Tax Would be a FAFO Move for the US,” former Bloomberg Opinion columnist Tim Culpan shared that if Trump goes further and adds import duties to a broad category of semiconductor products, such as GPUs, modules, and subsystems, the results could be “disastrous.”
“The US doesn’t have the capacity to manufacture anywhere near a similar volume of equivalent devices. It would take months, if not years, to build the factories, spin up the tools, and then go through the qualification process,” Culpan wrote.
Such a tax would hurt more than just TSMC; it would hurt the tech giants investing in massive domestic projects like the $500 billion Stargate.
“The company is capacity-constrained in advanced packaging for AI chips, and clients have no other choice,” Culpan continued. “In fact, the biggest victims would be the three men who so proudly and obsequiously fawned over the new president the first full day he was in office: Larry Ellison, Sam Altman, and Masayoshi Son.”
Supply chain managers, procurement teams, and even chip company stakeholders must monitor President Trump’s next moves and take proactive measures to keep their companies agile in the face of long-term impacts from actions like tariffs on Taiwan. This could significantly affect price trends for all chips since TSMC produces 60% of the world’s semiconductors and 90% of advanced semiconductors.
Low-cost AI Models like DeepSeek Will Increase Demand for Optical Transceivers
In the days since the explosive entrance of the Chinese AI model DeepSeek-R1, the tech industry has been furiously finding new ways to expand AI capabilities without a hefty price tag. TrendForce’s latest report on DeepSeek’s impact reveals that its popularity will likely increase global data center deployments, which host the data AI applications use to train. Thanks to growing demands for high-speed data transmissions, optical transceivers, a key component used to boost data center interconnectivity, are expected to boom.
TrendForce reports that “worldwide shipments of 400G and higher optical transceivers reached 6.4 million units in 2023. This figure is expected to grow to 20.4 million units in 2024 and exceed 31.9 million units in 2025, representing an annual growth rate of 56.5%.”
DeepSeek and CSPs, in combination with AI software companies, will help spur AI adoption. TrendForce notes that this will push for more wireless base stations, factories, and other industrial sites, which will need many micro data center deployments. This will lead to greater use of optical transceivers to support the shift, increasing the number of nodes per factor by three or five times more than in traditional architectures.
Fiber-optic communication is preferred to electrical signal transmission due to its higher bandwidth, lower latency, and reduced signal attenuation, which meet AI’s strict requirements. TrendForce says that these components should also see increased demand because optical transceivers contain other critical components, such as laser diodes, modulators, and photodetectors.
Suppliers of these vital components include Broadcom, Coherent, Lumentum, Landmark Optoelectronics, LuxNet, Truelight, and Hamamatsu. Most of these players are primarily based in the U.S. and Japan, with some Taiwanese firms able to enter the silicon photonics modules sector market. There could be a greater risk of component unavailability for some companies in countries facing rising geopolitical tensions.
Access to semiconductors for AI applications is becoming increasingly important. As a result, component unavailability might become more common as high demand and geopolitical risks impact the global supply chain.
The Impact of Trump’s Latest Tariffs on Supply Chains in the 2025 Market Outlook – February 14th, 2025
The semiconductor industry is reeling from a jam-packed week of tariff announcements fueling concerns about possible supply chain disruptions. Since the inauguration of U.S. President Donald Trump, the semiconductor market has waited with bated breath to see what steps he’d take regarding U.S. policy on the chip sector. During his presidential campaign, Trump made numerous statements on everything from Taiwan to the CHIPS and Science Act, prompting many to take a wait-and-see approach to his policies.
A few weeks into his second term, the industry quickly got its answer after a flurry of orders. The most alarming was the planned 25% tariff on Canada and Mexico, two of America’s closest trading partners. Likewise, China received its own 10% tariff on goods, resulting in many chip companies scrambling to determine the impact on the broader global supply chain.
Semiconductor Industry Holds its Breath as it Plans for Trump’s Tariffs
According to CNBC, President Trump’s 25% tariff on Canada and Mexico shocked economists. Such tariffs would have affected prices across numerous industries, including cars, steel, food, alcohol, and semiconductors. The article noted ASML and TSMC, in particular, as bracing for what could have been a wide-reaching slowdown in the semiconductor supply chain.
“The latest moves won’t do much to calm the high tensions which have hit the semiconductor sectors,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown, to CNBC. “Companies like Nvidia rely on the production of chips from outsourced factories overseas like China and Mexico, but many other parts needed to construct AI data centers could also be vulnerable to tariffs, given they are imported.”
However, after talks between U.S. President Trump, Canadian Prime Minister Trudeau, and Mexican President Sheinbaum, a 30-day cooldown period was enacted before the tariffs could be implemented. Conversely, the 10% tariffs on Chinese goods went into immediate effect on Tuesday, prompting retaliatory tariffs from Beijing.
Trump stated that the 10% tariffs were only an “opening salvo” and that if talks between Washington and Beijing failed, more substantial ones would follow.
The BBC warns that continued tariffs between countries, not just the U.S. and China, could have long-term impacts on price trends for a wide range of products, including semiconductors. Given the widespread nature of semiconductor manufacturing, it would be challenging for the chip industry to escape without consequences.
Likewise, the growing interest in artificial intelligence (AI) has put chips in the spotlight of geopolitical tension, making them much more prone to disruptions caused by trade wars.
The U.S. utilizes manufacturing hubs and resources within Canada and Mexico. In fact, since the global semiconductor shortage, the U.S. has been remarkably eager to work with countries within range outside of Southeast Asia. The North American Chip Corridor is one such effort created in 2023 to push toward semiconductor leadership for the two countries.
If Trump continues to push for tariffs, these plans could be delayed, if not entirely unsuccessful. If semiconductor organizations’ components are more prone to supply chain disruptions like tariffs and global trade wars, the 30-day cooldown period should be utilized to find alternate suppliers.
Deloitte Gives Global Outlook on Semiconductor Market for 2025
It might not have felt like it, but 2024 was a great year for the semiconductor industry. Despite spending the majority of the year mitigating remaining excess inventory, the industry experienced 19% growth, surpassing analysts’ early-year forecast of only $611 billion. Deloitte’s latest study shows that 2025 might be even better for the industry, with the possibility of hitting $697 billion, a new all-time high, and is on track to reach $1 trillion in chip sales by 2030.
AI chip demand is the primary driver of this growth—no surprises. This demand will focus on CPUs, GPUs, data center communications, and power chips. Research in Deloitte’s 2024 TMT Predictions report previously showed that generative AI chips would collectively be worth more than $50 billion, a surprisingly conservative forecast. In 2024 alone, generative AI chip sales represented 20% of all chip sales.
Lisa Su, chief executive officer at AMD, “moved her estimate for the total addressable market for AI accelerator chips up to US$500 billion in 2028—a number larger than sales for the entire chip industry in 2023.”
As it was for the chip industry the previous year, the challenge is that generative AI and associated revenues only account for a few chips. The broader semiconductor market and the chips that comprise the rest of the available products do not see equally high numbers. In 2024, despite the industry’s overall growth, most other chip shipments saw declines. Only AI drove the overall sector up.
Advanced packaging is another fast-growing market that drove sales last year. TSMC is the dominant player in this specific sector. Deloitte notes that “TSMC’s CoWoS (chip-on-wafer-on-substrate) 2.5D advanced packaging production capacity will reach 35,000 wafers per month (wpm) in 2024 and could increase to 70,000 wpm (100% year-over-year) and further by 30% year-over-year to 90,000 wpm by the end of 2026.”
As Deloitte notes, it is imperative to remember that the semiconductor industry has been cyclical throughout its history. Extreme shifts of growth and shrinkage hallmark this, but the severity of these cycles has seemingly declined while its frequency has increased. Deloitte’s study says that 2025 seems relatively solid, which aligns with Edgewater Research’s forecast in early 2024, stating that 2025 would mark the true shift from flat demand to stabilization.
However, nothing is set in stone regarding 2026, especially with the new U.S. administration and the continued demand for AI. Deloitte remarks that in 2025, the four big topics will be generative AI accelerator chips for PCs and smartphones, a “shift-left” approach to chip design, the ongoing global labor shortage, and increased geopolitical tensions.
Market monitoring will be required to assess AI part demand for next-generation AI chips. With DeepSeek’s surprising entrance, more companies could question whether the high costs of AI training and chips are worth it, possibly weakening demand. Likewise, geopolitical conflict may put more chips at risk of becoming unavailable as export restrictions or bans interrupt the flow of raw materials and components. Organizations must work alongside suppliers that can be more agile in today’s market.
DeepSeek and Stargate Represent the Extreme Ends of the AI Industry – February 7th, 2025
In a landmark move poised to reshape the artificial intelligence (AI) landscape, OpenAI, in collaboration with industry giants, has unveiled the Stargate Project—a $500 billion initiative to construct advanced AI infrastructure over the next four years. This venture seeks to solidify the United States’ leadership in AI by developing state-of-the-art infrastructure for future AI systems within the country.
Concurrently, the AI sector is experiencing significant disruption from DeepSeek, a Chinese startup that has rapidly ascended to prominence. DeepSeek’s latest model, DeepSeek-R1, has demonstrated advanced reasoning capabilities comparable to leading U.S. AI models but achieved at a fraction of the cost and energy consumption. DeepSeek has challenged the prevailing belief that cutting-edge AI requires massive computational resources and triggered substantial market reactions, including a nearly 18% decline in Nvidia’s stock value.
Stargate’s Plan Comes with a $500 Billion Investment
Days into Donald Trump’s second presidency, a new, massive AI project is underway that, if it succeeds, could redefine the entire American artificial intelligence industry.
Named Stargate, this high-profile AI infrastructure project is being touted as a massive step forward in securing American leadership in AI, generating significant economic benefits globally, and creating thousands of American jobs.
SoftBank, OpenAI, Oracle, and MGX are Stargate’s initial equity founders. SoftBank and OpenAI will be the lead partners for Stargate, with the former having financial responsibility and the latter operational responsibility. Arm, Microsoft, Nvidia, Oracle, and OpenAI will be the key initial technology partners, and they plan to collaborate closely on this computing system.
According to OpenAI’s announcement, the buildout is underway in Texas, with evaluations of potential sites for more campuses before definitive agreements are finalized.
Trump has already lauded the initiative at a White House event OpenAI Chief Sam Altman and other tech executives attended as “a resounding declaration of confidence in America’s potential.”
However, the road ahead may not be as smooth as it seems. The Financial Times reports that Stargate hasn’t yet secured funding, nor will it receive government financing. Likewise, it will only serve OpenAI once it is finished.
“The intent is not to become a data center provider for the world. It’s for OpenAI,” said one familiar with the initiative.
Another person told the Financial Times that the plan was far from developed. “They haven’t figured out the structure, they haven’t figured out the financing, and they don’t have the money committed.”
Over the last few years, Altman has been working with his team to boost OpenAI’s access to data and computing power, which is a consistent bottleneck for many large language models (LLMs). While Altman has dedicated the past year to fleshing out his infrastructure plans, the idea of announcing it at the White House came as a surprise to many familiar with the project.
Some have commented that the announcement is just due to the inauguration of a new president. While Trump has verbally supported the project, new policies could later contradict Stargate’s tentative plans.
In the meantime, work is already beginning in Abilene, Texas. Oracle and data center start-up Crusoe will supply around $10.4 billion combined, which will go toward financing and components for the Texas site. Microsoft will provide the computing power at the Texas facility, which will power OpenAI.
The hefty number of chips required to accomplish Stargate’s dream could significantly affect the global supply chain, leading to shortage conditions and higher price trends. Companies looking to secure GPUs in the future might want to begin contacting their suppliers to see if this will affect their buy-ahead orders.
DeepSeek-R1 Turns AI Industry Upside Down
Since the debut of OpenAI’s ChatGPT, companies and countries have been clamoring to become the next big name in the AI market. Over the last two years, the market has seen its fair share of flops as tech giants and start-ups hammered out their chatbots’ flaws.
Many considered China’s attempt at a ChatGPT equivalent, made by Baidu, a disappointment. With the U.S. passing increasingly tougher restrictions on AI, Nvidia–currently the leading player in the GPU market–products got harder to come by. It seemed impossible to make an AI model with a small amount of Nvidia chips and a tight budget when OpenAI and others poured billions into their own.
That was until DeepSeek threw its proverbial bomb into the mix.
Industry experts have compared DeepSeek-R1, the startup’s latest AI, to OpenAI’s latest AI model, o1. With only 10,000 A1 Nvidia GPUs and $5 million, DeepSeek-R1 is on par with OpenAI’s latest AI model, o1. According to Reuters, it’s also 20 to 50 times cheaper to use than OpenAI’s o1 model, depending on the task.
How is that possible? Well, according to some critics, it shouldn’t be.
Alexander Wang, CEO of Scale AI, says that China, including the fund behind DeepSeek, probably has more Nvidia GPUs than they let on but, due to export controls, are staying quiet.
However, Emad Mostaque, founder of Stability AI, claims that not only is DeepSeek not faking the cost and amount of GPUs, but if they had better optimized H100 chips, they could have trained both V3 and R1 models for under $2.5 million.
Likewise, because DeepSeek made R1 open source, that means that anyone can modify, distribute, and commercialize the AI model. Should DeepSeek be lying, others will quickly find out.
Other critics are concerned about the impact R1’s low cost could have on the industry. Specifically, some believe the most significant threats will be to U.S. equity markets, as it calls billions of capex into question. Other experts argue that while the cost to train the model could continue to decline, the expenses that usually make up the lion’s share of the cost come from a model’s inference or the AI running in the wild.
Likewise, these technological advancements could quickly encounter a historical trend that has impacted every innovation: Jevons’s Paradox. At the “heart” of Jevons’ Paradox, the idea states that as efficiency rises, the cost to make a resource decreases, but the price increases due to high demand and total resource consumption.
So even if AI models became less costly, the billions poured into their upkeep and continued development will only become more expensive.
When it comes to the future of AI, one can be sure that DeepSeek isn’t the first and won’t be the last to shake up an exploding industry. We are only beginning to scratch the surface of the possibilities associated with AI, and industry disruptors like DeepSeek are some of the primary drivers of innovation and new ideas. It will be interesting to see how the industry evolves now that it considers what can be done under constrained circumstances.
